High labor cost eats into your profit. If you're consistently above the industry average, you're losing money on every guest that walks in. In this article, you'll learn step by step how to analyze your labor cost and bring it back to a healthy level.
What is a healthy labor cost?
Labor cost is the percentage of your revenue that goes toward wages. For restaurants, the industry average is between 28% and 35% of revenue. If you're consistently above 35%, you have a problem.
💡 Example:
Restaurant with €50,000 monthly revenue:
- Healthy labor cost (32%): €16,000
- Your labor cost (42%): €21,000
- Difference per month: €5,000
That's €60,000 too much per year!
Why is your labor cost going up?
There are usually three reasons why your labor cost becomes too high:
- Too many staff for your revenue: You have the same team as when you were busier
- Inefficient scheduling: Staff are waiting around during slow periods
- Declining revenue: Fixed wage costs stay the same, but you're earning less
⚠️ Watch out:
Labor cost often rises gradually. You only notice it when it's too late. So check your percentage monthly.
Measure your current labor cost
First, calculate exactly where you stand. The formula is simple:
Labor cost % = (Total wage costs / Revenue excl. VAT) × 100
Include in wage costs:
- Gross wages (including yourself as owner)
- Employer contributions (social premiums, pension premium)
- Holiday pay and 13th month bonus
- Outsourced labor (freelancers, temp workers)
💡 Example calculation:
Month of February:
- Revenue: €45,000 incl. VAT = €41,284 excl. VAT
- Gross wages: €12,500
- Employer contributions: €3,200
- Outsourced labor: €1,800
- Total labor: €17,500
Labor cost: (€17,500 / €41,284) × 100 = 42.4%
Analyze where it's going wrong
If you're above 35%, find the cause:
Check your revenue per working day
Divide your monthly revenue by the number of days you were open. Has this declined compared to last year? Then declining revenue is your problem, not too much staff.
Check your hours per €1000 revenue
Count all worked hours (including yourself) and divide by your revenue in thousands of euros. For restaurants, 8-12 hours per €1000 revenue is normal.
💡 Example:
€45,000 revenue, 450 worked hours:
- 450 hours / 45 (thousands) = 10 hours per €1000
- That falls within the normal range of 8-12 hours
So the problem isn't efficiency, but low revenue per hour.
Four options to lower your labor cost
Option 1: Increase revenue (best solution)
If you generate more revenue with the same team, your labor cost automatically drops. Focus on:
- Higher average check (desserts, wines, extras)
- More covers during slow periods
- Delivery or takeout as an additional revenue stream
Option 2: Schedule more efficiently
Plan staff based on expected busy periods, not desired staffing levels:
- Monday and Tuesday: minimum staffing
- Friday and Saturday: full staffing
- Flexible on-call staff for peak days
Option 3: Combine tasks
Have employees do multiple tasks:
- Cook who also does prep during slow hours
- Server who also handles register and phone
- Manager who also serves during busy times
Option 4: Lower personnel costs (last resort)
Only if the other options don't work:
- Fewer hours per week per employee
- Temporarily agree on wage reduction
- In extreme cases: let staff go
⚠️ Watch out:
Cutting back on staff can damage your service and quality. Try to increase revenue or work more efficiently first.
Monitor your progress
Check your labor cost percentage every month. Use the same formula and compare with previous months. This way you'll see if your measures are working.
An app like KitchenNmbrs can help you keep track of your financial figures, so you quickly see if your labor cost is rising again.
How do you lower your labor cost? (step by step)
Calculate your current labor cost percentage
Add up all wage costs from last month (gross wages + employer contributions + outsourced labor). Divide this by your revenue excl. VAT and multiply by 100. This gives you your current percentage.
Analyze the cause
Check whether your revenue per working day has declined or your hours per €1000 revenue are too high. Calculate how many hours your team works per €1000 revenue (normal is 8-12 hours).
Choose your strategy
Try to increase revenue with the same team first. If that doesn't work, optimize your scheduling. Only as a last resort lower personnel costs by reducing hours or letting staff go.
✨ Pro tip
Check your labor cost per day of the week. Often the problem is too much staff on slow days, not on busy weekends.
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 is a normal labor cost for restaurants?
For restaurants, a healthy labor cost is between 28% and 35% of revenue. Above 35% becomes problematic for your profit.
Should I count myself as owner in the labor cost?
Yes, include yourself at a market-rate salary. Otherwise you'll get a distorted picture of your actual labor cost.
How often should I check my labor cost?
Check your labor cost every month. It can rise quickly without you noticing, especially when revenue declines.
What if my labor cost has structurally increased because of COVID?
Many restaurants now have higher labor costs due to lower revenue. Focus on increasing revenue and scheduling more efficiently before you lay off staff.
Can I lower labor cost without losing quality?
Yes, by scheduling smarter and combining tasks. Have your team multitask and plan staff based on expected busy periods.
⚠️ EU Regulation 1169/2011 — Allergen Information — https://eur-lex.europa.eu/eli/reg/2011/1169/oj
The allergen information on this page is based on EU Regulation 1169/2011. Recipes and ingredients may vary by supplier. Always verify current allergen information with your supplier and communicate this correctly to your guests. KitchenNmbrs is not liable for allergic reactions.
In the UK, the FSA enforces allergen regulations under the Food Information Regulations 2014.
📚 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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