SALES AND LABOR PROJECTION
These notes will suport those in the Restaurant industry driving sales volumes in excess of $10,000 per week and are looking to drive their labor costs down without compromising standards in Quality, Service and Cleanliness.
We can assume that your payroll software is able to dissect costs and hours worked by Restaurant Department and could include :
1 Grill Section
2 Kitchen Preparation
3 Utility (wash up)
4 Front of house wait staff
5 Management
If you do not have department dissection within the payroll administration, then the system can be run on
TOTAL HOURS WORKED and
GROSS LABOR DOLLARS (including tax) just as effectively for the whole operation.
There are Two Primary Objectives
1. Project sales in advance & fine tune projections
to achieve a (+ or -) 5.00% variation
between actual sales and targeted sales.
2 Control the Labor % to (+ or -) .50 % variation
between actual labor % and targeted labor %
The achievement of these objectives is based on the use of a
SALES and
LABOR ANALYSIS FORM combined with a
PRODUCTIVITY matrix (schedule) that is
SALES per
LABOR HOUR based.
The Sales and Labor Analysis Form is completed manually and kept up to date on a daily basis. The resultant "hands on" completion of this form will deliver "top of mind " awareness of all the factors influencing your Gross Labor dollar spend, productivity (Sales per Labor hour) & % to Sales control.
a) SALES AND LABOR ANANYSIS FORM
b) PRODUCTIVITY MATRIX (SCHEDULE)
To achieve these results we need to measure productivity in SALES per LABOR HOUR to drive a productivity that can deliver:
a) The adequate maintenance of Quality,Service and Cleanliness standards.
b) Meet a target LABOR % as outlined in a budget or within the PRODUCTIVITY DEMAND
for your particular business.
3 Other Influences.
The process of achieving accuracy in labor projection also demands constant attention to :
a) Driving AVERAGE RATE down through award classification mix (varying rates for age
groups) and average age of all staff.
b) Efficient rostering in all sections(Grill etc) to maximise PRODUCTIVITY improvement
opportunities.
c) Thorough knowledge of seasonal influences on SALES patterns such as holiday periods,
special events and impacts on SALES due to weather and other external factors.
d) The ability to make training HOURS an on going weekly commitment.
4. Definitions
SALES: Total weekly SALES excluding tax (GST, VAT, IVA or TAX)
GROSS LABOR $ Total Gross weekly LABO R DOLLARS including MANAGEMENT
LABOR % {LABOR $ / SALES X 100 }
HOURS Total weekly scheduled HOURS including MANAGEMENT and TRAINING HOURS (non productive)
AVERAGE RATE PER HOUR {Total LABOR $ / PAID SCHEDULED HOURS}
PRODUCTIVITY SALES / HOURS expressed as Sales per labour hour.
5 Mechanics of the System.
EXAMPLE:
So our Restaurant experiences $25,000 in Sales Turnover in one week. (Ex Tax, VAT, IVA, GST)
We know that we are currently experiencing approximately $13.60 in average rate including management. (Gross Payroll $ / Total Paid Scheduled Hours)
Our budget calls for a 29.5 % Labor Cost Component. {Gross Labor $ / Sales X 100}
Our Productivity Matrix calls for $46.10 pruductivity. ( Sales per Labour Hour)
So we write a Roster for $25,000 { $25,000 / $46.10 } which equals 542 HOURS
Remember this 542 HOURS includes TRAINING hours for new employees and or existing employees.
6. Rate per Hour
The need to reduce the average payrate is a weekly priority and can be achieved through the application of Award Classification mix (varying rates of pay for different skill levels and age) and the correct mix or ratio of senior and junior employees for your organisation.
7. Further Notes on Productivity
We know that productivity is {SALES / PAID HOURS} and is called "sales per labor hour".
But Productivity also equals {AVERAGE RATE / LABOR % }
Therefor Labor % equals { AVERAGE RATE / PRODUCTIVITY X 100 }
So if our all up rate of pay per hour is say $10.00 and Wednesdays PRODUCTIVITY was $40.00 in Sales per labor hour then the LABOR % for Wednesday was 25% {10/40 X 100}
This is a very useful tool for calculating the Labor % on a daily basis, without having to know the value of the Labour $ for that day.
8. The use of the form is self explanatory.
The form can be customized to your own needs regarding department names and any other special requirements. It can also be simplified to meet any need.
The form contains:
Sales PLAN for lunch, dinner, total and accumulative sales for the week and ACTUAL for the same data.
Daily and Accumulative variance plan to Actual in $ and %
Variance to last week in $ and %
Weekly, Period and Year to Date.
Planned hours and Actual hours on a daily basis plus TOTAL for week.
Planned Productivity and Actual Productivity on daily basis plus TOTAL for week.
Planned Labor $ and Hours by Department and Actual Labor $ and Hours by Department and variance plus TOTAL for week. See which department is not meeting it's target.
Weekly Plan versus Actual, Plus Period to Date (weeks 1 to 4 Accumulative) and Year to Date on the following data. For those that break their reporting into 13 four week periods.
For ease of evaluating comparative data it is best to split the year up into 13 periods each of 4 weeks.
Rate per Hour $
Labor $
Allowances $ (uniform,taxi etc)
Gross Labor $ (incl tax)
Labor %
Productivity $Sales/Hour
9. Comparative Sales
There is also a section for Weekly, Period and Year to Date Sales plus provision for last year with a variance and % column to keep track of growth over the previous year.
10. Comments and Promotional Activity
A section is available to notate promotional activity such as special "giveaways" or comments on media campaigns in either radio, press, television or web activity.
11. Using the Form
a) Project a SALES (ex tax) figure and break up into lunch, dinner and total for each day and weekly accumulative in the PLAN section.
b) Break up the Department Labor plan $ costs, hours and TOTAL
c) Calculate the Rate per Hour {Labor $/ Hours}
d) Calculate the Labor % { Gross labor $ / SALES X 100}
NOW WRITE YOUR ROSTER AROUND THE PLANNED HOURS THAT WILL DELIVER YOUR TARGETED LABOR %
e) As the week progresses place in the actual SALES and complete the variance ACTUAL to
PLAN and %
f) When the payroll is run for the week place in the Actuals and complete the Variance.
g) Complete the variance to last week columns this will assist in identifying trends which can be
reacted to either by putting in more hours or by taking hours out of the roster.
h) There is also provision for TOTAL GUESTS on a daily basis and AVERAGE CHECK which
needs to be tracked as a measure of the service level.
12. Results
When Sales are travelling along at a constant on a weekly basis then this process can become repetitive.
The by product of this repetiveness is that you will become an expert at Labor $ and % control, because you are constantly focusing on the key drivers and determinants of one of the single biggest costs your business will experience.
13. Sales Peaks & Troughs. (Highs and Lows)
A by-product of this emersion in Labor control mechanics is that you will have a case history of how to react to extreme highs and lows in the Sales cycle due to external influences.
That means you are alerted to periods of low sales and are able to react accordingly through the focus on the variance to last year.
Equally when periods of high turnover are experienced you are able to apply a measured response to putting more hours in the roster without the problem of over rostering due to lack of quantitive information.
This means that a reaction to a sales downturn will keep labor % the same. No more loss in profit when a sales downturn occurs. If you project the downturn and use the matrix then you deliver constant Labor % no matter what the fluctuation in Sales.
Conclusion
The use of this form will very quickly train the Roster Manager in your organisation to achieve a Sales Projection of (+ or - )5.00 % ACTUAL to PLAN
If the Productivity Matrix is used in conjunction with this tracking device then the Roster Manager will also achieve a Labor % Projection of (+ or -) .50 % ACTUAL to PLAN.
With repeated use a variance of plus or minus .1% to .2% of Sales can be achieved.
A 1.5 % saving on an average $25,000 per week restaurant is $19,500 per year.
Evaluate your Labor Cost Controls now and see what savings these Sales and Labor Projection tools can deliver in a matter of weeks.
Have fun.
Nick
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