If you’re one of the tens of thousands of restaurant owners in New York City and State, chances are rising staff wages have negatively impacted your profit margin.
Here’s the scenario: you have a server who earns $5.50 per hour before tips. She works full-time at 40 hours per week. At the end of the year, she earns around $11,470.
But, due to increased wages which nearly doubled from 2015 to 2017, and she went from earning $5.50 an hour to $7.50 an hour. And there’s another catch, for those slow days when she doesn’t earn $9 per hour after tips, you’re required to make up the difference. So let’s average the hourly pay out to $8.00 an hour, assuming she still works 40 hours a week. That same employee is now costing you $16,640 per year. An additional $5,170.
These increased wages quickly add up, especially for small, independent restaurants with numerous employees, who already teeter the line between breaking even and making a profit.
But, there are ways to keep your restaurant profitable as wages continue to climb. Here are five suggestions.
Take a close look at your employee schedules and see where you can cut costs. You can do this a few ways:
- Use a scheduling software such as 7Shifts to help you determine busy times and trends. Look at your labor costs and figure out actionable ways to reduce them. For example, if you staff three servers Monday through Friday starting at 3 p.m. but don’t get busy until 7:30 p.m. then you can staff one opening server and schedule the other two to arrive at 7:00 p.m. This change will result in instant savings without disrupting service.
- Generate heatmaps, labor-to-sales and cost-to-sales reports on your POS system to determine business patterns. Following the numbers will enable you to make informed business decisions based on week after week metrics. For example, if you are open for brunch Saturday and Sunday mornings, but Saturday brunch service is always a flop and never yields a profit, then consider dropping Saturday brunch service and focus on maximizing other days that deliver a return.
As the saying goes, “time is money”, and there is no reason to have someone on the clock who isn’t actively contributing to the bottom line — so watch the trends and peak times of your business and cut out unnecessary hours.
Now is the time to take a closer look at how and where you spend money. What can be reduced? Are there any expenses or wasteful buying habits you can eliminate? Examine your costs carefully and then cut them. Here are some ideas:
- Re-negotiate with your payment processor to get a lower rate or switch to a more economical provider.
- Replace regular light bulbs with money-saving compact fluorescent bulbs. Instruct staff to turn off lights and electronics when not in use.
- Track your inventory to see what items you currently have in stock and use what you have! If you have leftover vegetables on the verge of expiry turn them into a soup special or staff meal.
- Use your itemized sales reports to track and eliminate underperforming items. If you find specific items that are taking up menu real estate but not offering a return of investment, it’s time to give them the axe and go back to the drawing board or simplify your menu altogether.
DECREASE PORTION SIZES
According to the National Restaurant Association, two out of three Americans are overweight, therefore, decreasing portions sizes isn’t just good for your bottom line, it’s also good for your customer’s health. Smaller portions use less inventory which means your cost-to-sales ratio will be decreased and so will your output of food waste.
Raise prices incrementally so your regular customers don’t experience sudden sticker shock. This will enable you to maintain profitability as your costs continue to climb. If an average entree in your restaurant costs $16 then start by increasing the price to $16.50 or $17.00. By taking small steps, rather than a massive jump, you won’t risk losing your loyal patrons.
If you want to totally flip the switch on increasing labor costs, join a growing number of NYC restaurant owners and eliminate tipping altogether. Instead of accepting tips, opt to include a mandatory service charge on all of your customer’s bills. The service charge will be split among all of your staff, and guarantee them a much higher hourly rate than the state-mandated minimum wage. In addition to this, your customers won’t be paying anything additional outside of what they would ordinarily tip.
As a forewarning, tip elimination is still a hot-button topic, especially among a lot of hospitality workers who may make more with tips. Consider your staff, your customers, and your venue type before making a decision. If you are a restaurant group, fine dining establishment or a quick-service restaurant this could be a viable option. However, if you are mainly a bar or nightclub, this might not be the best route for your business model.
Ultimately, the best way to remain profitable as increased wages continue is to examine your business and how and where you are spending your money. Follow the metrics and use all or some of these tips to help you cut costs and increase profits.
About the Author: Antasha Durbin is an Online Marketing Specialist at TouchBistro where she spends her days advising restaurateurs on their point of sale systems and her nights writing hospitality-related content.