Calculating Labour as a % of Revenue

It’s one thing to know how much you’re spending on staff, it’s another to know how much you’re spending on staff compared to your revenue.

Most hospitality businesses look at their labour costs as a £ figure as opposed to a percentage figure, and they’ll often be happy when that £ figure is lower from one week to the next.

This isn’t the best way to look at it.

On week one your labour cost might be £3,000 and the following week it might be £2,500. The fact that you’ve spent £500 less might seem great on the face of it, but if your turnover in week one was £10,000 and in week two it was £7,500, then your labour spend as a percentage of revenue is actually higher in week two.

The percentage of revenue spent on labour in week one is 30% and the percentage of revenue spent on labour in week two is 33.33%.

A 3.33 percentage point increase might not seem like very much, but for every £100,000 in revenue that you generate, you’ll spend an extra £3,333.33 on labour. Imagine if you’re a restaurant with a turnover of £1 million- that’s more than £33,000 that you’ve just wiped off your profit. That’s a member of staff to take over most of your job, or it’s dividends and a salary increase for you!

What are your labour targets? How do you monitor them?