Labour cost is the total amount a hospitality business spends on its people. This includes wages, salaries, bonuses and benefits for all staff from front line to management. It’s one of the biggest expenses for hotels, restaurants and other hospitality businesses. Labour cost is usually calculated as a percentage of total revenue or sales so businesses can track and manage this big expense.
Understanding and controlling labour cost is key to any hospitality business’s financial health. It directly impacts profit and can be the difference between success and failure. By monitoring labour cost managers can make informed decisions on staffing levels, scheduling and overall operational efficiency. This helps balance great service and cost. Effective labour cost management also allows businesses to pay competitive wages to attract and retain top talent while still keeping the bottom line healthy.
Let’s say you’re the manager of a busy restaurant. It’s Friday night and you’re expecting a packed house. You’ve scheduled extra staff for the rush but as the evening goes on you notice customer flow is slower than expected. You quickly realise if you keep all staff on your labour cost will be too high compared to your sales. You decide to send home two servers and a kitchen hand early and adjust your labour cost in real time. This decision helps you hit your labour cost percentage for the night and not blow your wage budget while still delivering great service to your customers. By the end of the shift you’ve balanced customer satisfaction with financial responsibility and demonstrated labour cost management in action.'