Learn what labor percentage is and how to calculate it.
Understand the concept behind the labor percentages and learn how to implement it in your own business with ease.
Kristian Emil Larsen
18. February 2022
Do you have an overview of how much of your turnover goes to wages?
The amount of bankruptcies in the restaurant industry has been increasing since 2014. Therefore, it is important that you as a self-employed person have control over your labor percentage so that you can make informed decisions when it comes to regulating your daily staffing level in your restaurant or shop.
By keeping track of payroll expenses compared to revenue, you get a solid tool to know when to reduce your payroll costs without compromising either customer satisfaction, efficiency, or revenue.
In this article, we review everything you need to know about labour percentages, how to calculate it and not least how to apply it in practice.
What does labor percentage mean?
Labor percentage is a widespread unit of measurement used specifically by restaurants and retail stores to help the manager understand how good the economy is in the business.
The rate data is often used to assess whether wage costs are too high or too low compared to the revenue that comes in.
How to calculate your labor percentage.
To calculate your labor percentage, you must take your salary expense and divide it by your revenue, then multiply it by 100. See the example below.
Labor percentage = (salary expenses) ÷ (revenue) x 100
With this simple formula you can calculate your labor percentage per year, quarter, month, week, day and even hour.
Example: A restaurant's labor percentage on a given day.
Salary expenses on the day: €4.677,50 | Revenue on the day: €24.000
A healthy labor percentage for most businesses in the retail and restaurant industry is around 20% -30%. However, this can vary considerably from company to company and typically depends on the following criteria:
- Company concept - Company location - Number of employees - Employee efficiency
Companies with several departments or locations should be aware that particular size, location and efficiency will create a difference in the wage percentages, which is why it is not unusual for the wage percentage to fluctuate a lot between companies within the same chain or franchise.
How to optimize your labor percentage.
In order to help you get started with measuring and optimizing your labor percentage, we wrote a blog with tips and tricks which you can implement immediately.
