Labor cost percentage tells you how much of every dollar of sales went to paying people. Most operators look at it after the week is over, when the only thing left to do is feel bad about it. The better time is Sunday night, while you're writing next week's schedule, because the schedule is where labor cost is decided.
This guide covers the formula, how to turn a forecast into a labor budget and a number of hours, and how to check the week while it's still happening.
The formula
Labor cost % = labor cost ÷ net sales × 100
Labor cost should include every hour you pay for: hourly wages, overtime, and salaried managers, plus employer payroll taxes and benefits if you want the full picture. Decide once whether you include salaries and taxes, and stay consistent, or your trend will jump around for no reason.
Net sales is sales after discounts, comps and refunds, before tax and tips.
Example: last week a café paid $4,200 in wages and did $15,000 in net sales. Labor cost %: 4,200 ÷ 15,000 = 28%.
Setting a target
There's no universal right percentage. It depends on how much you make from scratch, whether guests order at a counter or are served at a table, your local wages and your prices. Set your target from your own numbers:
- Start from your budget: what does labor need to be, at your expected sales, for the week to cover food, rent and everything else?
- Look at your own history: on weeks that felt well-staffed and made money, what was labor percent?
- Set it per location. Two shops with different layouts and volumes shouldn't share a target.
Why scheduling to last week goes wrong
The common habit is to copy last week's schedule and tweak it. The problem: labor percent depends on sales, and next week's sales aren't last week's. Copy a busy week's schedule into a quiet week and labor percent jumps. Copy a quiet week into a busy one and service suffers.
The fix is to start from what you expect to sell.
Step 1: forecast sales by day
Use the same weekday over recent weeks as a starting point, then adjust for anything you know about: events, holidays, catering, weather.
Example forecast for next week:
| Day | Mon | Tue | Wed | Thu | Fri | Sat | Sun | Week |
|---|---|---|---|---|---|---|---|---|
| Expected sales | $1,500 | $1,500 | $1,800 | $2,000 | $2,800 | $3,400 | $3,000 | $16,000 |
Step 2: turn the forecast into a labor budget
Labor budget = expected sales × target labor %
Example: with a 27% target, the week's labor budget is 16,000 × 0.27 = $4,320.
Do the same for each day. Saturday's budget is 3,400 × 0.27 = $918. Monday's is 1,500 × 0.27 = $405.
Step 3: turn dollars into hours
Hours available = labor budget ÷ average hourly cost
Example: if the average hourly cost of your team is $18, Saturday's $918 buys 918 ÷ 18 = 51 hours. Monday's $405 buys 22.5 hours.
Now schedule into those hours. Put people where the sales are: build shifts around your busiest hours, and trim the edges of the day where you're paying people to wait.
Fixed and variable labor
Some labor doesn't move with sales. Someone has to open and close no matter how quiet it is. That's why slow days nearly always run a higher labor percent than busy ones.
Example: a café needs two people for 8 hours each just to be open, 16 hours or $288 at $18. On Monday that's already 288 ÷ 1,500 = 19% of sales before anyone else is scheduled. On Saturday it's 288 ÷ 3,400 = 8.5%.
So don't judge each day against the weekly target. Hit the target for the week, accept that quiet days run higher, and make sure busy days are staffed efficiently enough to make up for it. If a quiet day is always well over, look at opening hours or the minimum crew.
Step 4: check the schedule before you publish
Add up the scheduled hours and cost for each day and compare with the forecast.
| Day | Expected sales | Scheduled cost | Labor % |
|---|---|---|---|
| Mon | $1,500 | $450 | 30% |
| Sat | $3,400 | $864 | 25.4% |
| Week | $16,000 | $4,400 | 27.5% |
Example: the week comes out at 27.5%, just over the 27% target. Trimming one 4-hour afternoon shift on Tuesday ($72) brings it to $4,328, or 27.05%. That's close enough, and it was fixed before the week happened instead of discovered after.
Step 5: check during the week, and after
- Daily: compare actual labor percent with the target. If sales come in well under forecast by mid-afternoon, send someone home early or cut a closing shift.
- Weekly: look at the days over target. Is it always the same weekday? Then the staffing pattern for that day needs to change, or the forecast does.
- Sales per labor dollar is the same idea turned around: net sales ÷ labor cost. Example: $15,000 ÷ $4,200 = $3.57 of sales for every dollar of labor. Higher means more efficient. Some managers find it easier to read than a percentage.
How Ospelia does it
In Ospelia's Scheduling, each day of the week shows expected sales from the forecast, and scheduled hours, projected labor cost and labor percent update with every shift you add. You can write the schedule by hand, copy last week, or pull scheduled shifts in from Square, then publish. Staff with access see their schedule on their phone.
Labor tracking shows labor cost as a percent of net sales day by day against a target you set per location. Every day over target is flagged, with hours, sales per labor dollar and a staffing guide that shows average sales, hours and labor percent by weekday. Hours and cost sync from Square timecards.
The Sales forecast is built from your own history, recent momentum and last year's seasonality, and each morning's number locks before you open so its accuracy is on the record.
