Help Wanted: How do you turn your second largest cost into your most profitable investment?April 3rd, 2012 | Posted by in Labor & Operations
Hiring continues to be a key challenge for many restaurants. Michael Harms, senior business analyst at the Dallas-based People Report, recently commented that, “the ease of hiring and the ease of finding candidates is going away and going away quickly.” Since labor is usually the second largest expense for restaurants (other than food costs), hiring correctly can often be the key differentiator between making money and suffering large losses. To successfully staff restaurants, executives must correctly answer three questions:
- Where and how much labor should I employ? Optimal labor deployment should consider how adding or reducing labor by location affects both profits and customer satisfaction. While many restaurants have complex staffing models, these models often fail to consider the intricate causal link between hiring and generating incremental profits. Deploying more labor at very busy locations may seem obvious in many cases. However, such restaurants may already be performing to their maximum potential in a given market, and adding labor may actually reduce their profitability. A finely-tuned labor strategy will go beyond simply measuring the cost of labor to understanding the accurate incremental impact of labor changes on key metrics.
- In which day parts should I hire more or less? More labor on Fridays and less on Tuesdays has often been the day parts model. However, as more check and customer level data becomes available, restaurants can get detailed insights into the day parts where labor changes would have the most impact. Using this Big Data, restaurants are now able to answer questions regarding how adding or reducing labor impacts sales or margins at the item level by time of day. These insights can be coupled with local labor market conditions to build a staffing model that optimally balances day part labor requirements with labor availability.
- How should I train and retain employees? In all service businesses, the staff is a core part of the customer experience. Restaurants try a variety of training programs to help improve operational metrics (e.g. wait times), customer satisfaction, and employee retention. However, many executives wrestle with the challenge of measuring which of these programs are having an impact. Being able to isolate the impact of various labor programs is key to preventing substantial investments in initiatives that may have low or no impact on key performance indicators.
The most robust way to understand the accurate impact of labor changes on your profits is to conduct scientific tests. Based on the findings of these tests, you can build a finely-tuned labor strategy by location. Click here to read more.
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