Smart Strategies to Reduce Restaurant Labor Costs

Running a restaurant is never an easy feat, but the challenges restaurant professionals face have been exacerbated in recent years by rising costs and a declining workforce.

Between November 2023 and November 2024, average wholesale food price rose by 7.6% – the largest 12-month increase in nearly two years. While you might aim to cut back on extraneous costs, it’s a delicate balance between cost savings and saving face. Restaurants survive on the reputation and quality of their food. Cutting food costs can negatively impact your business, causing sub-par guest experiences, bad reviews, or lower dining volume.

So, where can you effectively cut costs and continue to run like a well-oiled machine?

Visiting your restaurant’s labor costs is a good place to start. A few strategic workforce adjustments can significantly reduce labor costs without compromising the quality of your service or menu.

Here are actionable tips to help you achieve this.

1. Analyze Your Current Labor Costs

Before making changes, you need a clear understanding of your current labor expenses. To calculate average labor cost, divide total labor expenses—including wages, benefits, and payroll taxes—by total revenue. Industry benchmarks suggest that the average labor cost for a restaurant should fall between 12% to 15% per day and no more than 30% per month.

If your labor costs exceed this range, it’s time to take action. Start by breaking down labor costs by position and shift to identify areas of inefficiency. 

For example, do you have too many staff scheduled during slow periods? Are overtime hours creeping up unexpectedly? This analysis is the foundation for any cost-saving measures you implement.

2. Fine-Tune Your Employee Schedule

One of the most effective ways to reduce restaurant labor costs is through better scheduling. Restaurant employee scheduling tools can help you align staffing levels with demand. Start by analyzing sales data from previous weeks to identify peak and slow periods. Use this data to schedule more staff during busy times and scale back during lulls.

Avoid a one-size-fits-all approach to scheduling. Consider factors like employee strengths and preferences to create efficient and balanced shifts. For example, schedule experienced employees during peak hours to ensure quick service, and less experienced staff during slower times.

Another tip: implement a flexible scheduling policy. Encourage employees to share availability and preferences, which can reduce last-minute absences and unnecessary overtime.

3. Cross-Train Staff

Cross-training employees is a highly effective strategy for reducing labor costs while increasing operational flexibility. When staff members can handle multiple roles, you can adjust shifts dynamically to meet changing needs. For instance, a server who also has basic bartending skills can step in during emergencies or assist during downtime.

Cross-training also boosts morale by offering employees opportunities to learn new skills and advance their careers. Host regular training sessions to ensure everyone is comfortable handling a variety of tasks. This investment in your team keeps them lean and adaptable and avoids the need to hire additional staff.

4. Monitor Real-Time Performance

Tracking real-time labor performance is crucial for staying within your budget. Consider using a POS system with integrated labor tracking features to monitor labor costs as a percentage of sales. This allows you to make immediate adjustments if costs exceed expectations.

For example, if sales are lower than projected during a shift, send a few employees home early to reduce hours. Conversely, if sales are higher than anticipated, you have the data needed to call in additional support without overstaffing. Real-time monitoring ensures that labor expenses align closely with revenue, minimizing waste.

5. Implement Incentives for Productivity

Employee incentives are a win-win strategy: they encourage staff to work more efficiently while helping you control costs. Offer bonuses for meeting weekly labor cost goals or hitting sales targets. For example, set a target for servers to upsell certain menu items. This increases revenue without adding additional labor costs.

Other incentives might include rewards for perfect attendance, completing shifts efficiently, or achieving customer satisfaction metrics. These programs motivate employees, create a culture of accountability and teamwork, and lead to long-term labor cost savings.

6. Optimize Prep Work

Inefficient prep work is a hidden labor cost that adds up quickly. Analyze your kitchen’s prep routines to identify areas for improvement. For example, do staff spend time prepping ingredients that frequently go to waste? Are certain tasks taking longer than necessary due to outdated tools or processes?

Try to streamline prep tasks by using pre-portioned ingredients, automate repetitive tasks where possible, and schedule prep work during non-peak hours. Additionally, involve your kitchen team in identifying inefficiencies—they often have valuable insights on how to speed up processes without sacrificing quality.

7. Leverage Gig Workers for Flexibility

During periods of fluctuating demand, gig platforms–like shiftNOW–can help you stay within your labor budget. Gig workers provide the flexibility to handle demand spikes without committing to full-time hires or paying overtime.

For instance, bring in gig workers to cover shifts during a busy weekend and scale your workforce as needed. This approach allows you to trial run workers over a few shifts before hiring full-time and reduces the risk of turnover.

Additionally, since gig workers are independent contractors and not W-2 workers, there are several costs you won’t incur. Mandatory employment costs encompass payroll taxes, workers' compensation, and employment insurance, while common but non-mandatory costs include health insurance, retirement plans, family and medical leave, and paid time off.

8. Foster a Collaborative Culture

Reducing restaurant labor costs isn’t solely about cutting hours or wages. Building a collaborative workplace culture fosters engagement and a sense of value amongst employees, leading to greater productivity and efficiency. Empower staff to share ideas for improving workflows and cutting waste. When employees understand how labor costs impact the business’s success, they’re more likely to contribute to cost-saving efforts.

Achieving the Right Balance

Lowering labor costs doesn’t have to mean cutting corners or overburdening your staff. By leveraging the gig economy, focusing on smarter scheduling, and cross-training staff, your business can maintain high service standards while keeping expenses under control. Start implementing these strategies today, and you’ll likely see measurable improvements in your labor costs by the end of the week.

Achieving the right balance is key—you want to reduce restaurant labor costs while ensuring your team remains motivated and your customers are satisfied. With the right approach, you can create a leaner, more efficient operation that benefits everyone involved.

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