On The Money: Do the Math

Operators better be ready to measure labor and service.

By David Farkas, Senior Editor -- Chain Leader, 8/1/2006

Labor costs often amount to a third of your sales. Dan Simons, former vice president of operations for Eatzi’s and now a principal at Vucurevich/Simons, a Bethesda, Md.-based restaurant consultancy, explains how an “underlying profit architecture” can help you manage it effectively.

What’s key for developing an underlying profit architecture?
The key is to evaluate all the metrics before making decisions. Construction, [furniture, fixtures and equipment], pre-opening budgets, all-in occupancy costs determined simultaneously with guest counts, check averages, prime costs and net income. Start-up guys need to develop this underlying profit architecture before they spend a penny on design or before they sign a lease. They need to make sure the math works.

Where should they begin?
The daily measurement of front-line activity. Server checkout is a vital component of that. We look at server tip average and at server check average each day. We put that on a grid so servers have their own charts. It’s both a snapshot and a cumulative performance review each day. We get into the details of what they are selling and how they are performing compared to the benchmarks and their peers.

Contrast that with a more typical scenario.
Server checkout is often just a one-way transfer of money and information: This is what I did, this is what I owe. The process may not even have a manager involved.

What is management missing?
Management is disconnected from minute-to-minute activity that drives all the results. Upper-level management can talk about check average and product mix, but if they don’t have a mechanism to measure them in real time and give feedback, it’s a diluted strategy.

What are some of the most effective labor practices you’ve encountered?
The most important labor practice is projecting sales and then writing a schedule to a labor matrix that is tied directly to those sales—by daypart and by 15-minute increments. This can be done with a handwritten schedule or Excel or a robust time-attendance package. But the key is to believe labor is a predictable expense and can be controlled as such.

So you advise planning ahead?
Managing labor is not a reactive practice. That is the paradigm to break. Being reactive is overscheduling for a lunch shift because “maybe” it’s going to be really busy. A manager will say, “Let’s put 12 people on, and if it’s not busy, I’ll send people home.”

But it might be really busy.
Gut-instinct labor management is a real mistake. Generally speaking, sales in this business are incredibly predictable. If you look at sales for the last 52 Friday nights, that data is going to tell you what to expect for the coming Friday night.

How bad does it get?
It never ceases to surprise me that even some corporate chains, say, with 30 to 50 restaurants, still use Word to write schedules and don’t tie labor dollars to sales projections or workload projections. Of course, many companies are great at labor, but for such a predictable, controllable prime expense, everyone should be great at it.