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How to Manage a Restaurant – Labor Cost
Knowledge of Labor Costs
Controlling your labor costs is one of the most important factors in managing your business.
Chances are that if you can’t keep track of your work you are likely to lose income.
What is the prime cost?
Prime cost is the total cost of goods sold, gross labor cost for all your employees, which includes payroll, payroll taxes, worker’s comp, medical insurance and other employee benefits. For a fast food or casual F&B facility, a good benchmark for prime cost is 60% or less of F&B revenue.
Learning what your restaurant’s main expenses are should be at the top of your to-do list.
Do you know the labor cost formula?
Payroll divided by total sales = labor percentage
The average labor percentage in most restaurants should be at 20 on 25% for hourly employees and 10% for management.
The upscale restaurant has a higher labor percentage. Menu merchandise mix, food quality and service, pricing and hours of operation will affect your food and labor cost percentages.
How to maintain a good labor cost percentage?
Train your management staff on how to effectively monitor your employees.
It all starts with making the restaurant schedule
Don’t just schedule employees to fill shifts, schedule enough employees to accommodate your guest with exceptional service.
Make a reasonable schedule that makes sense. Have management post a managers log in the office; be sure to enter sales numbers above projected sales.
Community events play a big role as well. See if you can get a school calendar to keep you informed of school plays and other events.
Find out what’s happening in the neighborhood like:
- Sports activities
- Find out the theater show times, what time do they come out?
Chamber of Commerce: The Chamber of Commerce is a great way to find out what’s going on in your area. Look up your state or local Chamber of Commerce, there are all kinds of events posted on their community board.
Supermarkets are a great way to find out what’s going on in your neighborhood.
How can I lower my working percentage?
- Proper staff training: The better the training the less the change in errors or mistakes. Make sure you have a good training program. Training the trainers is a great way to show the trainees what is expected of them. In each position there should be a designated person who trains the staff members, each trainer should be properly trained by hand and administer the quizzes. Trainers should not train your employees unless they demonstrate the skills and learning methods, these employees should train your employees the way you want them to be trained. Management should monitor the training to make sure it is done properly.
- Cross Training: Cross train dishwashers at the fryer station or busing tables. Hosts or Hostesses may assist servers with drink orders or serve guest food. Prep cooks can be cross trained as a cook. The point is during peak periods you can move employees to different positions when sales are higher than normal or when servers are in the weeds. Cross-trained employees can handle multiple positions during off-peak periods, that way you have a minimum number of employees during slow periods.
- Good employees: Training staff on how to do their job in the best way possible creates the WOW EFFECT as long as you are consistent and skilled.
- Proper handling of transfers: Who trains the managers? – Owners must be involved in the day-to-day operations of their restaurant. There are many ways to train management. When looking for a manager for your restaurant, make sure they have previous experience and that reference checks have been done. The owner can train the employee or you can find a restaurant consultant who trains the staff through on-hand training or through the internet. Once the management staff has been properly trained then they can train the rest of the staff on how to deliver WOW service to each of your guests.
- Find out what percentage of your time work: Owners or Management need to know where they stand on the percentage of working time. You can get your restaurant’s sales by reading the Point of Sale (POS), equivalent to labor dollars. Then you divide payroll dollars by total sales = labor percentage. A good bench mark for labor would be 20 to 25% for hourly employees and 10% for management. If you use a paper check system because you don’t have a POS then track your sales and work on time. Create a sales and labor log so you can record sales and labor. The owner or manager can tally the numbers or use the hostess to tally guest checks on time and get management to work dollars. Remember not to terminate employees before any meal period. The servers will try to convince the management to cut the floor because they can make more money, there must be enough staff to accommodate your guest with exceptional service. At the end of any meal period, management should provide direction to staff regarding their side work and closing of their assigned areas. These staff should be off the clock on time – don’t let them milk the clock – it’s your money wasted.
- Don’t overstaff the restaurant: Overstaffing a restaurant can be very expensive. If you do hire employees make sure you move quickly to get employees home early if the sale doesn’t happen.
- How do you create a reasonable schedule? Figure out what your projected labor dollars are and divide them by last week’s sales or use a rolling sales dollar figure.
- Rolling Sales: Add up the last three weeks of restaurant sales and divide it by 3.
Example: If you are in the fourth Week, then add Week One ($1552.00) Week Two ($1932.00) and Week Three ($2405.00) = $5889.00. Divide labor dollars $1300.00 by Sales $5889 =22%. Use 22% to guide you in creating a reasonable schedule.
After you create a schedule, if the planned work exceeds 25% then you need to make changes. If the percentage is below 20% then you can add more hours to the schedule.
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