Managing Labor Costs

Productivity is defined as the amount of output gained from a given amount of input. For instance, it could be the amount of food produced and served for each labor hour worked. Measuring productivity helps management evaluate the efficiency of the staff. These measures are generally used for the entire staff as a group rather than to measure individual productivity, since it really is a team effort to produce and serve meals to customers. There are several criteria for evaluating efficiency, such as:

• Number of transactions (or covers) per labor hour
• Revenue (or sales) per labor hour
• Meal equivalents produced and served per labor hour
• Number of guests served per labor dollar
• Labor dollars per guest served
• Labor cost percentage (of revenue)

The productivity formula is the ratio of output (jobs done) to input (employee time):

Output (food and service) divided by Input (labor hours)

equals Productivity Rate (eg. meals per labor hour)
Output can be expressed in number of meals, transactions, or customers, labor dollars spent, or in amount of sales. Restaurants frequently use number of covers or dollars in sales, whereas a hospital or school/college operation would typically express it in number of meals. Input is the number of labor hours worked or scheduled during the period of time or the number of labor dollars spent.

An indirect approach to measuring productivity is determining the percentage of revenue spent for labor (labor cost percentage).