Your restaurant’s labor cost percentage is the total amount of money you spend on labor costs — including salaries, wages, healthcare, benefits and taxes — shown as a percentage of food sales. In the example, the company has $2,000 in sales. Alternatively, you may buy prepared items from another business or from a food service warehouse. If your sales revenue for the previous year was $10,000 and you spent $3,000 on labor costs, your company may not have netted much at the end of the year, assuming your other expenses were manageable, but your prospects for profitability are promising if you can grow your company to $100,000 in revenue. From the staff to cook and serve the food, to those who handle cleaning and management, the cost of labor for all of these functions adds up quickly. Labor cost percentage is a financial term used to describe a business' labour costs relative to its overall revenue. Labor cost percentage doesn't just include payroll, but also any employee benefits and taxes associated with your payroll. Labor is a variable cost, meaning that it varies more or less directly relative to how much business you transact. Calculating Your Labor Rate. Labor cost percentage is a calculation that enables businesses to understand the financial relationship between payroll cost and overall revenue. This strategy may reduce your labor costs but may increase your food costs. What that means for you, then, is that while you may pay your servers $15 per hour, your actual labor costs are much higher because you have to factor in all the other expenses. To calculate your labor cost percentage, divide your labor cost by your total … So, in order to calculate this figure, we’ll want to start by adding up all of the associated labor costs … Look at number of staff needed to serve guests. How to Calculate Labor Cost Percentage. Determine your total operating costs. For example, if your annual revenue is £750,000, and you've spent £210,000 on labour: Labour percentage = (£210,000 ÷ £750,000) x 100. High-end restaurants that devote considerable attention to creating a fine dining experience and making all menu items from scratch will land on the high end of this spectrum. Our, is designed from the ground up with business owners in mind. But first, tell us … Invest in the Right Employee Scheduling Tool. Your business may have other specifics that you will want to factor into your labor costs, but this article has covered a lot that … Some business owners make the mistake of only including the wages of hourly workers into their labor costs. We see that our additional cost to have Pat “on the job”, when computed as a percentage… Labor cost can also be expressed relative to total operating costs. When an employee works full time, they will potentially work 2,080 hours in one year (40 hours x 52 weeks). 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