Wages are one of the largest expenses in the hospitality industry, yet they are also one of the most manageable. For bars, pubs, and restaurants, labor costs often account for 28%-35% of revenue, but exceeding this range can quickly erode profitability. Understanding the true cost of wages and implementing strategies to align them with revenue is critical for long-term success.
1. What Costs Go Into Wages?
Wages are not limited to the hourly or salaried payments made to employees—they include a range of additional costs that directly impact your bottom line.
Here’s what should be considered when calculating wage percentages:
- Superannuation: Employer contributions to retirement funds.
- Payroll Tax: Levied by some states or regions on total employee wages.
- Workcover Insurance: Covers employees in case of workplace injuries or illnesses.
- Annual Leave and Other Accruals: Includes entitlements like annual leave, sick leave, and long service leave.
- Security Staff Costs: While not always considered part of traditional wages, security is a personal cost tied to staffing and should be included in wage calculations.
Including all these costs in your wage percentages provides a clearer picture of the true financial burden and helps avoid underestimating labor expenses.
2. The Impact of Wage Percentages on Profitability
In hospitality, every percentage point matters. While wages are essential for providing excellent service and delivering quality food and beverages, they can also become a liability if not managed carefully.
- High Wage Percentages: Often caused by overstaffing, inefficient scheduling, or misaligned staffing levels during quiet trading periods.
- Low Wage Percentages: May indicate understaffing, which can hurt service quality and lead to dissatisfied customers.
Finding the right balance ensures that wages contribute to profitability without compromising the customer experience.
3. Aligning Wages with Revenue
One of the key principles in managing wages is ensuring they fluctuate in proportion to sales. This requires a dynamic approach:
- Flexible Scheduling: Use historical sales data and forecasts to align staff levels with expected customer demand.
- Quiet Period Adjustments: During slower trading days, consider shortening or cutting shifts to reduce unnecessary labor costs.
- Peak Period Preparation: For busy days, increase staffing levels strategically to handle demand while avoiding excessive overtime.
4. The Role of Daily and Weekly Monitoring
Monitoring wages daily and weekly is essential for staying on track. Managers and chefs should:
- Compare Actual Wages to Targets: Use wage percentages as a KPI to assess performance.
- Track Sales Trends: Adjust staffing levels based on real-time data to avoid overspending during quieter periods.
- Review Rosters Regularly: Ensure rosters reflect current trading patterns rather than being based on outdated assumptions.
5. Balancing Higher Wages with Lower COGS
In some cases, higher wages can be justified if they result in lower food or beverage COGS. For example:
- From-Scratch Preparation: Chefs who prepare more items in-house often incur higher wages but benefit from lower ingredient costs.
- Example Case: A client achieved a 23% food COGS, well below the industry benchmark of 28%-32%, but their wages are higher than average. The client considers this trade-off worthwhile because it delivers better overall profitability.
However, the balance must always be carefully managed to ensure the benefits outweigh the costs.
6. Incentivizing Managers and Chefs to Stay on Target
Providing incentives can motivate your leadership team to stay focused on wage management:
- Performance Bonuses: Tie bonuses to achieving wage percentage targets or improving overall profitability.
- Regular Coaching Sessions: Use weekly meetings to review wage performance, identify challenges, and set actionable goals.
- Empowerment Through Data: Share profitability reports with managers and chefs to give them ownership of their financial results.
7. Long-Term Strategies for Wage Management
Improving wage management isn’t just about cutting costs—it’s about building a sustainable operation. Long-term strategies include:
- Investing in Training: Well-trained staff are more efficient, reducing the need for extra labor during busy times.
- Leveraging Technology: Use scheduling software and real-time labor tracking tools to optimize staff levels.
- Cross-Training Employees: Staff who can handle multiple roles reduce the need for additional hires, especially during peak periods.
Wages as a Controllable Expense
While wages represent a significant cost in hospitality, they are also one of the most controllable expenses. By aligning staffing levels with revenue, monitoring wage percentages regularly, and balancing costs with other areas like COGS, you can ensure that wages contribute to profitability rather than eroding it.
With the right strategies, tools, and focus, managing wages becomes less about cutting costs and more about creating a financially sustainable operation that supports both your team and your bottom line.
