Do you know if your restaurant's labor costs are killing your profits? Labor expenses rank as the second-largest cost after food purchases in hospitality. Most restaurant owners struggle to identify what constitutes a healthy percentage and watch their profitability slip away.
What is a healthy labor cost percentage?
A healthy labor cost percentage for most independent restaurants falls between 25% and 35% of revenue. This range shifts based on your concept, service level, and automation degree.
💡 Example:
Restaurant with €50,000 monthly revenue:
- At 30% labor costs: €15,000 per month
- This includes gross wages, employer contributions, and your own salary
- For 4 FTE employees: average €3,750 per person
This represents a healthy percentage for casual dining.
Differences by restaurant type
The ideal percentage varies significantly by concept:
- Fine dining: 30-40% (more staff, higher service level)
- Casual dining: 25-35% (standard service)
- Fast casual: 20-30% (limited service)
- Delivery/takeaway: 15-25% (minimal staff)
- Café with food: 25-35% (comparable to casual dining)
⚠️ Important:
Always include your own salary, even if you don't pay yourself a regular wage. Your time carries value and must be factored into the calculation.
How do you calculate your labor cost percentage?
The formula appears simple, but you need to include all costs:
Labor cost % = (Total labor costs / Revenue) × 100
Total labor costs consist of:
- Gross wages of all employees
- Employer contributions (approximately 25% of gross wage)
- Your own salary or entrepreneur's salary
- Temporary staff hiring
- Overtime and allowances
💡 Example calculation:
Restaurant with €40,000 monthly revenue:
- Gross wages: €8,000
- Employer contributions: €2,000
- Your own salary: €3,000
- Total labor costs: €13,000
Labor cost %: (€13,000 / €40,000) × 100 = 32.5%
Signs that your labor costs are too high
Watch for these warning signals:
- Above 40%: Immediate action needed, you're losing money
- 35-40%: Too high for most concepts
- Excessive overtime: Sign of understaffing or poor planning
- High sick leave: Leads to extra hiring costs
How do you lower your labor cost percentage?
Several strategies exist to optimize your labor costs. After managing kitchen operations for nearly a decade, I've seen these approaches work consistently:
Increase your revenue per employee:
- More efficiency in the kitchen
- Better scheduling of shifts
- Cross-training of staff
Optimize your schedules:
- Plan based on expected busy periods
- Use flexible contracts for peak times
- Avoid unnecessary overlap between shifts
💡 Practical example:
Better planning can often save 5-10%:
- Before: 35% labor costs = €14,000 at €40,000 revenue
- After optimization: 30% = €12,000
- Savings: €2,000 per month = €24,000 per year
The balance between costs and quality
Too low labor costs can also create problems:
- Below 20%: Risk of understaffing and poor service
- High staff turnover: Costs more in the long run due to training new people
- Burnout on your team: Leads to sick leave and mistakes
The goal isn't the lowest labor costs, but the optimal balance between costs, quality, and workload.
How do you calculate your labor cost percentage? (step by step)
Gather all labor costs from last month
Add up: gross wages, employer contributions (approximately 25% of gross wage), your own salary, temporary staff hiring, and overtime. Don't forget any cost item.
Determine your total revenue from the same month
Use your POS system or accounting to determine the exact revenue. Take the revenue including VAT as customers pay it.
Calculate your percentage using the formula
Divide your total labor costs by your revenue and multiply by 100. For example: €13,000 labor costs / €40,000 revenue × 100 = 32.5%.
✨ Pro tip
Track your labor costs by 4-hour time blocks rather than full shifts. You'll often discover that your 2-6 PM period runs at 45% while dinner service hits only 25%, revealing specific scheduling inefficiencies worth €800-1200 monthly.
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
Should I include my own salary if I don't pay myself a regular wage?
Yes, absolutely. Your time has value and must be included. Calculate at least €15-20 per hour for your own work, otherwise you'll get a distorted picture of your real costs.
Are employer contributions always 25% of the gross wage?
This serves as a good rule of thumb, but the exact percentage can vary between 20-30% depending on employee age and specific regulations. Check this with your accountant for precision.
What if my percentage comes out above 40%?
Then you're probably losing money and need to take immediate action. Look at your schedules, raise your prices, or optimize your work processes to improve efficiency.
How often should I check my labor cost percentage?
Check this monthly at minimum. Labor costs can quickly increase due to illness, overtime, or seasonal fluctuations, so early adjustments prevent major problems.
Is 20% labor costs always better than 30%?
Not necessarily. Too low labor costs can lead to understaffing, poor service, and exhausted staff. Find the balance between costs and quality that works for your concept.
How do I handle seasonal fluctuations in my labor cost calculations?
Track your percentages across different seasons and adjust expectations accordingly. Summer terraces might run 28% while winter months hit 35% due to lower revenue per staff member.
Should part-time student workers be calculated differently than full-time staff?
No, include all wages and contributions equally in your calculations. However, student workers often provide scheduling flexibility that can help optimize your overall labor costs during peak periods.
📚 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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