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Restaurant Profitability Myths

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Of all the magazines that restaurateurs should be reading, Restaurant Startup and Growth is definitely one of them. It’s geared towards owner/operators, small chains, and independents. Their monthly articles concentrate on leasing, marketing, staffing questions, inventory, restaurant tips, human resources, and other relevant topics for independent restaurants (most of the advice can be applied to other industries too).
In July of 2009, Jim Laube wrote a wonderful article called Fairy Tales! The Top 10 Myths of Restaurant Profitability. Myth 5 and Myth 6 of this list focus on labor and labor costs, and we’ll take a close look at them here.

Paying Higher Wages Increases Labor Costs: Myth 5

Jim explains that every business has its overachievers. A staff member that can accomplish at least twice the amount of work as any other employee. A busboy who can keep the whole store clean without any help. A cook that can cook more than anyone else. A cashier who can run two lines. These fine staff members are working their tails off, and therefore should have a higher salary than an employee who just does the least work possible.
Despite what you may think, paying these overachievers more than their apathetic co-workers doesn’t raise labor costs , it frequently lowers them. Which situation would you rather have, assuming that both are able to serve an equal amount of customers?
Scenario 1:
Two bartenders making $8.50 / hour, working a 5 hour shift?
Total wages: $8.50 per hour * 2 employees * 5 hours = $85
Scenario 2:
One bartender making $12.00 / hour, working a 5 hour shift?
Total wages: $12.00 per hour * 1 employee * 5 hours = $60
A stellar bartender (Scenario 2) can outwork two so-so bartenders for an overall lower price.
Part of the difficulty in managing is locating these phenomenal employees. However, if you can locate them and promote them, your business will benefit, and so will your bottom line.

Paying Overtime is a Sign of Bad Management or Poor Scheduling: Myth 6

In most restaurants, there is an operational mandate to guarantee that part-time personnel works less than 35 or 40 hours per week. This is to avoid paying overtime, which is generally 50% costlier (time and a half), or even 100% costlier in some cases (double time). It’s an awesome idea from an hours and cost point of view, but this mandate does leave out an important key factor, the worker.
Frequently, staff members who are working part-time need additional hours to make ends meet. These employees, who may be pivotal to the establishment, have specific economic requirements and occasionally need to pick up extra hours to meet these requirements. By refusing to let these employees work additional hours (perhaps 45 to 50 hours) sometimes, they may look for a new job somewhere else , therefore increasing turnover, and costing the business in lost business, turnover, and hiring while looking for a replacement.
If even remotely possible, make an effort to accommodate personnel needs, be it with the intermittent added overtime hours, or building the employee schedule so that staff work on particular days to work around a second job or other availability. Employees are less likely to quit if all of their needs can be met at one specific place of employment.
TimeForge employee scheduling software is used by managers and operators of independent restaurants and retailers, as well as franchises and chains of companies in the hospitality, food-service, retail, and other service-oriented industries. TimeForge will increase profitability, reduce turnover, and improve retention at your business! Try it free!

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