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Labor Metrics in Hospitality Settings – A Brief Overview

photo of a woman paying for a purchase at a restaurant

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In this post, we outline a few labor metrics that are useful in hospitality settings. Your employees are among your restaurant or hotel’s greatest assets. They’re the ones who ultimately keep customers happy and coming back. However, your staff is also one of your largest overhead expenses, and inefficient scheduling will damage your bottom line.

Overstaffing leads to overspending and a loss of profit. Understaffing leads to customer frustrations and a loss of sales. Taking an analytical approach to labor management is a way to help maximize the efficiency of your labor force.

The Sales Per Labor Hour Formula

One type of measurement worth noting is sales per labor hour (SPLH). In this calculation, you take the number of sales in a given period and divide it by the number of hours your employees were working in that period. If you are determining the SPLH for a one-hour period where 10 employees are at work, you divide the total sales by 10. This number is especially helpful for businesses where the gross profits are directly related to the number of customers served.

The Labor Cost Percentage

Another measure that may be used by restaurants and retail stores is the labor cost percentage. (In some businesses, it’s typically thought of as a productivity metric – less so among restaurants.) While the number of customers served affects the profits, the type and cost of items purchased also have an impact. In this calculation, you take the total labor costs over a given time and divide them by the gross sales made during that period. Multiplying that number by 100 gives you the desired measurement. A lower number means a more efficient and profitable labor force.

Why Paying Attention to Labor Metrics Matters

In a fast-casual restaurant, the profit margins can be thin. At standard mealtimes, there will be a heavy rush of customers hoping for fast service. In the mid-afternoon or late evening, employees may be less busy, which means fewer employees might be necessary. As you go through a day, your sales per man hour will rise and fall. As you learn this pattern over time, you’ll be able to address it with smart scheduling. Of course, good managers can already predict when their busiest hours will be, from experience, but tracking sales and labor can reveal the big picture as well as less obvious patterns. Over the long term, cutting out inefficiencies can make a big difference.

Finding the Right Number of Staff Members

If you follow the metrics over time, you’ll find that you’re playing a balancing game. Each extra staff member will increase the labor hours in the denominator of the equation and lower the metric. However, insufficient staffing will decrease the sales number in the numerator and also decrease the measure. You’re trying to find the sweet spot that maximizes sales while minimizing labor costs.

Determining the Right Combination of Staff Members

You’ve probably come to recognize that hourly workers are not all created equal. Experience matters in any business situation. Your seasoned team members can prepare food faster or check out customers more efficiently than your recent hires. Scheduling these workers is another piece of the labor puzzle. It might be tempting to schedule all your senior staff members into your busiest periods, and perhaps at times you should. However, this will leave other parts of the day or week without those mentors and reliable workers. You’ll have periods of high efficiency coupled with times of much lower productivity.

Reaching Your Labor Target

Whatever metric you use, TimeForge can help you stay on your labor targets and within your labor budgets. Our platform makes it easy to organize and update your daily and weekly schedules. We’ll help you get the right employees in the right position at the right time. As you work to improve efficiency, our labor management software can produce detailed reports and labor metrics to help you analyze your progress. When you use TimeForge Attendance and Scheduling in tandem, it can even enforce your sales to labor ratio

In sum, partnering with TimeForge will give you the tools you need to increase the efficiency and profitability of your business. For more information or a free trial of our cloud based labor management solutions, contact us today.

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