In the hospitality industry, wages are often the largest expense, typically accounting for 28%-35% of revenue. While controlling wage percentages is crucial for profitability, cutting too deeply can compromise service quality, leading to unhappy customers and lost revenue. The key is finding a balance: managing labor costs effectively without sacrificing the guest experience.
Here’s how to optimize wage percentages while maintaining exceptional service.
1. Use Forecasting to Align Wages with Revenue
Weekly forecasting is one of the most effective tools for managing wages. By predicting sales and aligning staffing levels accordingly, you can avoid unnecessary labor costs while ensuring sufficient coverage.
- Quiet Period Adjustments: Schedule shorter shifts or fewer staff on slow trading days.
- Peak Period Preparation: Add staff during busy times to maintain service quality without resorting to costly overtime.
- Function-Specific Staffing: For venues with function centers, tailor staff rosters to match the size and complexity of each event.
2. Cross-Train Your Staff
Cross-training employees to perform multiple roles can significantly reduce labor costs while improving efficiency.
- Flexibility: Staff who can switch between roles (e.g., bartenders who can also serve tables) reduce the need for extra hires during peak periods.
- Improved Coverage: Cross-trained staff can step in when needed, minimizing the impact of last-minute absences.
- Enhanced Skillsets: Employees feel more valuable, leading to increased job satisfaction and retention.
3. Monitor Wage Percentages Daily
Waiting until the end of the week to evaluate labor costs can lead to missed opportunities for adjustments.
- Daily Wage Reviews: Compare actual wages to sales each day to identify trends early.
- Shift Adjustments: If sales are lower than expected, adjust remaining shifts for the week to bring percentages back in line.
- Immediate Accountability: Daily tracking helps managers stay focused on keeping wage costs under control.
4. Incentivize Managers to Hit Wage Targets
Providing incentives tied to wage management encourages managers to stay vigilant.
- Performance Bonuses: Reward managers for achieving wage percentage goals.
- KPI Tracking: Use profitability reports to show how effective wage management improves overall performance.
- Clear Benchmarks: Set realistic wage targets and provide the tools managers need to meet them.
5. Balance Higher Wages with Lower COGS
In some cases, slightly higher wages may be acceptable if they lead to significant savings elsewhere, such as food or beverage costs.
- From-Scratch Preparation: Chefs who prepare more items in-house may require additional labor hours but can reduce food costs by avoiding pre-made ingredients.
- Case Study: A client achieved a 23% food COGS—well below the benchmark—by investing in skilled kitchen staff who prepared menu items from scratch. While wages were higher, the overall profitability improved.
6. Streamline Rosters with Scheduling Software
Investing in scheduling software can help ensure rosters are efficient and aligned with projected sales.
- Real-Time Adjustments: Tools that integrate with sales forecasts allow managers to adjust schedules dynamically.
- Avoiding Overlaps: Eliminate unnecessary overlap between shifts to prevent overstaffing.
- Historical Data Insights: Use past performance data to build smarter rosters.
7. Invest in Training to Boost Productivity
Well-trained staff are more efficient, reducing the need for additional labor.
- Improved Efficiency: Employees who are confident in their roles require less supervision and perform tasks faster.
- Reduced Turnover: Investing in training fosters loyalty, reducing recruitment and onboarding costs.
- Higher Customer Satisfaction: Skilled staff deliver better service, leading to repeat business and higher sales.
8. Optimize Wage Percentages During Quiet Seasons
During slower trading periods, like January or February, wage percentages can easily creep up if not managed carefully.
- Special Promotions: Drive sales with events or discounts that attract customers during quiet months.
- Smaller Teams: Scale back staffing levels to align with reduced foot traffic.
- Flexible Rostering: Use shorter shifts or part-time staff to cover gaps without overcommitting to full-time hours.
Achieving Balance Between Costs and Service
Optimizing wage percentages isn’t about cutting costs at all costs, it’s about finding the sweet spot where labor expenses support both profitability and service excellence. By leveraging forecasting, cross-training, and data-driven decision-making, you can manage wages effectively without compromising the customer experience.
When done right, labor management becomes a tool for growth, ensuring that your venue is not only profitable but also a place where customers and staff thrive.
