The food and beverage industry is a tough nut to crack when it comes to generating comprehensive revenue. The competition in the industry is always increasing, which means you must come up with a differentiating strategy to up your percentage of revenue. However, it is still a lucrative industry for new start up’s and also for seasoned restaurant owners who have the expertise to cut labor costs and other overheads, which tend to take up most of the percentage in revenue.
The high percentage of labor costs in revenue is due to the high dependence on labor in the industry. From cooking to serving and then after-sale services, all jobs are labor-intensive. Even the back end of your operations highly depends on skilled labor and their efficiency to carry out the designated tasks.
Labor costs
According to research, labor costs in the food and beverage industry take up around 20 -40% in the percentage of revenue. The percentage varies from restaurant to restaurant as well as other factors such as level of automation, target market, location, and type of offered services. This is a high percentage when we observe that it is a single cost, and we have not added other costs, which would result in a higher number, leaving business owners with little margins.
Food and labor costs differ from the kind of food service provider. As a fantastic restaurant, you will incur and higher food and labor cost percentages than if you are running a fast food or casual dine-in restaurant. The product itself, quality, service, pricing operating hours will influence the percentage of revenue. States have minimum wage limits for jobs, so you will incur a minimum cost as soon as you hire a worker. The amount of beverage sales, as a part of the food mix, has a substantial effect on the cost percentage as a whole.
Calculating labor costs
The biggest and most obvious cost would include the wages paid to your workers for the work they are performing for your business. Some of them are paid on an hourly basis, while others would be permanent staff. Businesses often are careless about factoring in other labor-related costs, which are related to benefits, leaves, vacations, health care, and so on. It is not easy to calculate all these costs accurately, and you would require proper bookkeeping set up to account for them at their closest.
Labor costs as a percentage of revenue substantially rise as you add the obscured costs, which are not so obvious.
Other costs
Once you have calculated all the costs, the job is not done because other costs are still to be calculated, which have complications of their own. The cost of acquiring the raw material for food before it is prepared and served or sold is another significant cost that cannot be ignored. Logistics, overheads, and utility bills are some other costs that you should keep in mind while operating in the food and beverage industry.
How to reduce labor costs?
The survival of your business depends on your ability to reduce costs and bring them to an optimum level. While reducing all costs is important, costs related to labor are perilous because they take up a significant share of the percentage of revenue. The staff for food and beverage businesses should be hired on a need basis. There will be instances when your restaurant would appear understaffed because it’s full, and at times it would appear to be overstaffed because there is no one to serve. Striking an optimum balance in between is the key to reduce labor costs. One way is to keep a specific number of permanent employees and hire the rest on an hourly basis if the demand arises. There are ways to work around the high costs and reduce its effect on the percentage of revenue. You need a bit of creativity and common sense.
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