Mastering the Labor Cost Percentage Formula

The Verdict

Labor is typically the highest operating expense. The Labor Cost Percentage formula `(Total Labor Cost / Total Sales) x 100` helps you gauge efficiency. For most restaurants, 25-35% is the target. Anything over 35% eats directly into profit.

The Calculation Steps

Do this weekly to spot trends before they become losses.

1

Sum All Labor Costs

Add up Gross Wages + Payroll Taxes + Benefits + Workers Comp. Do NOT just use hourly wages.

2

Determine Gross Sales

Take your total revenue for the same period (before tax).

3

Divide and Multiply

Divide Labor by Sales and multiply by 100 to get your percentage.

What is Prime Cost?

Prime Cost = Labor Cost + Cost of Goods Sold (COGS). This is the ultimate metric for hospitality.

The 60% Rule

"Total Prime Cost should essentially never exceed 60% of sales. If Labor is 30%, Food Cost should be 30% or less."

Don't Cut blindly

Cutting labor too low (e.g., under 20%) can ruin customer service, leading to lower sales in the long run. Efficiency > Understaffing.

Labor Cost Calculator

Enter your payroll and sales data to see your percentage.

Frequently Asked Questions

Does labor cost include manager salaries?

Yes. If they contribute to the operation, their salary and benefits must be included in the total cost.

How can I lower my percentage?

Increase sales (marketing), optimize scheduling (cut slack hours), or reduce overtime (better time tracking).

Optimize Your Margins

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