Labor cost data acts like a financial GPS for determining if an extra service will actually turn a profit. Many hospitality entrepreneurs shut down services that generate money, or keep running services that drain resources. Here's your step-by-step roadmap for making smart decisions.
What is labor cost data for services?
Labor cost data for services tracks how many staff hours you need for a specific service, and what those hours actually cost. Consider these examples:
- Sunday brunch (extra kitchen and serving staff)
- Hotel room service (separate delivery person)
- Off-site catering (transport + setup)
- Late night menu (extra chef until 1:00 AM)
- Delivery service (delivery person + packaging)
Your goal: figure out whether the extra revenue beats the extra labor costs.
The formula for service profitability
💡 Basic formula:
Service profit = Service revenue - (Food cost + Extra labor costs + Other costs)
If you get a negative number, you're bleeding money on that service.
Step 1: Measure your current labor costs
Before making any decision, you need to know what staff actually costs per hour:
- Gross hourly wage: what appears on the payslip
- Employer contributions: add 30-35% (pension, insurance, holiday pay)
- Indirect costs: training, sick leave coverage, uniforms
💡 Example calculation:
Chef earns €16 per hour gross
- Gross wage: €16
- Employer contributions (32%): €5.12
- Indirect costs: €1.50
Real cost: €22.62 per hour
Step 2: Calculate the extra labor hours per service
Count exactly how much additional staff you need for that service:
💡 Example: Sunday brunch
Regular Sunday: 2 chefs + 3 servers (5 hours)
With brunch: 3 chefs + 5 servers (7 hours)
- Extra chef: 1 × 7 hours = 7 hours × €22.62 = €158.34
- Extra servers: 2 × 7 hours = 14 hours × €18.50 = €259.00
Total extra labor costs: €417.34
Step 3: Compare with extra revenue
Now you match the extra labor costs against what the service brings in. From analyzing actual purchasing data across different restaurant types, services often look profitable on paper but fail this crucial test.
⚠️ Important:
Don't use total revenue - calculate with the extra revenue you only get because of that service.
💡 Example calculation:
Sunday brunch revenue: €1,200
Regular Sunday revenue: €600
Extra revenue from brunch: €600
- Extra revenue: €600
- Extra food cost (30%): €180
- Extra labor costs: €417.34
Result: €600 - €180 - €417.34 = €2.66 profit
When should you stop a service?
Stopping a service makes sense if:
- Consistent losses: 3 months straight of negative results
- High opportunity cost: your staff could earn more on other tasks
- Team burnout: exhaustion creates higher sick leave and turnover
- Quality decline: too many services hurt your main offerings
Alternatives to stopping
Before you quit, try these fixes first:
💡 Optimization options:
- Raise prices: 10% higher price often means 30% better margin
- Simplify menu: easier dishes need fewer labor hours
- Restrict hours: only offer during peak periods
- Set minimums: higher average bill per service
Include long-term impact
Some services lose money but build customer loyalty:
- Delivery attracts new customers who later dine in
- Brunch brings families who return for dinner
- Catering generates more reservations
Calculate: how much additional revenue does the service create indirectly? Tools like KitchenNmbrs can help track these connections between services and customer behavior.
How do you make the decision? (step by step)
Gather 3 months of data
Record for each service: revenue, extra labor hours, and extra material costs. Without data, you make decisions on gut feeling, and that often goes wrong.
Calculate actual labor costs per hour
Add 30-35% employer contributions to the gross wage, plus indirect costs. Most entrepreneurs calculate too low and think services are profitable when they're actually losing money.
Make the comparison per service
Subtract the extra food cost and labor costs from the extra revenue. If the result is negative 3 months in a row, stopping is often the best option.
✨ Pro tip
Track your labor cost per service hour for 30 days before launching any new offering. Services that require more than 40% of revenue in labor costs rarely survive long-term.
Calculate this yourself?
In the KitchenNmbrs app you can do this in just a few clicks. 7 days free, no credit card.
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Frequently asked questions
What if a service breaks even but doesn't make a profit?
Break-even usually isn't enough. Your staff could use those hours for profitable activities, or you could give them time off to cut costs. Target at least 10-15% margin on every service.
How do I factor in indirect benefits like customers who return later?
Track what percentage of your service customers return within 3 months for other services. Count 20-30% of that revenue toward the service as indirect value.
Should I include fixed costs like rent and utilities?
Only if the service creates extra fixed costs - delivery means extra fuel costs, for example. Fixed costs that exist anyway don't count in the service decision.
How do prep cooks factor into labor calculations for new services?
Include prep time that's specific to the service - if brunch needs 2 hours of prep cook time for pancake batter and fruit cutting, add those hours at the prep cook's true hourly rate. Don't count prep that happens anyway.
When is seasonality a factor?
For seasonal services like terrace dining or Christmas menus, only count the months you offer the service. A summer terrace doesn't need 12-month profitability, but it must work for the 6 months it's open.
How do I avoid stopping a new service too quickly?
Give new services at least 3 months. The first month always costs more due to startup expenses and inefficiency. Only measure after that to see if it becomes consistently profitable.
📚 Sources consulted
- EU Verordening 852/2004 — Levensmiddelenhygiëne (2004) — Official source
- EU Verordening 853/2004 — Hygiënevoorschriften voor levensmiddelen van dierlijke oorsprong (2004) — Official source
- EU Verordening 1169/2011 — Voedselinformatie aan consumenten (2011) — Official source
- NVWA — Hygiënecode voor de horeca (2024) — Official source
- NVWA — Allergenen in voedsel (2024) — Official source
- Codex Alimentarius — International Food Standards (2024) — Official source
- FSA — Safer food, better business (HACCP) (2024) — Official source
- BVL — Lebensmittelhygiene (HACCP) (2024) — Official source
- Warenwetbesluit Bereiding en behandeling van levensmiddelen (2024) — Official source
- WHO — Foodborne diseases estimates (2024) — Official source
Food Standards Agency (FSA) — https://www.food.gov.uk
The HACCP standards shown in this application are for informational purposes only. KitchenNmbrs does not guarantee that displayed values are current or complete. Always consult the FSA or your local authority for the latest regulations.
Written by
Jeffrey Smit
Founder & CEO of KitchenNmbrs
Jeffrey Smit built KitchenNmbrs from 8 years of hands-on experience as kitchen manager at 1NUL8 Group in Rotterdam. His mission: give every restaurant owner control over food cost.
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