How to Manage Hospitality Labor Costs and Keep Quality High, Too: 4 Strategies [RE-POST]

May 17, 2019 By Robert Jones

The cost of labor is a high-profile issue in the hospitality industry, particularly in light of the movement to raise the minimum wage. That aside, managing labor costs efficiently with profitability in mind has always been important. It’s one of the highest expenditures for restaurant and hotel organizations, typically representing between 20-25% of overall costs - and that doesn't even include the cost of management salaries. 

In an industry that operates on notoriously narrow margins, that can add up to a significant amount. Paying fewer people isn’t always the answer, especially if it impacts the customer experience. 

So, what's the answer?

Here are 4 ways to manage labor costs across multiple locations while keeping service quality high, too. It won't surprise you to know that the first point that affects all other points is all about data.

1. Connect the dots with data

The key to striking the balance between manageable costs and high service standards is greater visibility of business data comparable across all locations. Specifically, that balance is connected to what the data reveals about employees and their performances, and how that information informs (or should inform) labor planning at the corporate level as well as weekly staff scheduling at the local one. The best way to unlock this is to have the right tools to help regional managers and individual operators interpret incoming data quickly so they can act on it immediately. 

For instance, labor data can tell operators and technology leadership within the organization who their best people really are in real time and on an ongoing basis via cloud-based reporting. The data can do this by revealing the average check size as it corresponds to each server, which is a reflection of how well they're able to upsell. It can reveal how many refunds were processed, or how few, which is a reflection of their efficiency and accuracy. Information like this collected by cloud-based POS, reportable through integrated back office tools, and accessible on a mobile device at any time is invaluable to gaining important insights about the measurable value added by employees.

From there, the data helps operational decision-makers to know where to invest their labor expenses and in whom. It helps determine where the strengths and weaknesses of a workforce lie across all locations, and how best to optimize it very closely to real-time. In this, it’s the data that's the primary driver to streamlining and optimizing the effectiveness of a team. Ultimately, that means getting the best possible results out of an investment.

2. Optimize company training programs using business data

Business data managed in the cloud continues to be the source of truth when it comes to hospitality labor costs as applied to how a workforce is trained. Besides collecting information that reveals who the best people are, the data also reveals how training can improve the way employees serve the business and guests. In this, the development of company training programs defined corporately and managed locally benefits from greater visibility on what’s really happening in locations, and how those activities can be more efficiently executed. 

For instance, let’s say the data reveals that the bar is a significant revenue center for continuing growth in multiple locations, but only a small number of staff have the training to serve guests there. That presents an opportunity to cross-train the most promising staff members (decided by the data!) to make sure that they’re able to step into that role as seamlessly as possible when needed. The same can be applied to popular menu items that require special attention and skills to prepare them. 

Creating a training program at the corporate level using labor data analysis as a guide increases the quality of service and does so without necessarily having to expand the number of people on hand in each location to cover the average shift. That saves businesses money. It increases job satisfaction too, which in turn decreases the expenses connected with frequent staff turnover.

3. Find the scheduling sweet spot

Continuing to find equilibrium when it comes to labor costs and maintaining a high quality of service lives or dies by how well the weekly schedule is planned. Finding the sweet spot across several locations isn’t always easy. Matching the right number of people to corresponding customer traffic forecasts is only a fraction of the exercise with many more moving parts to consider. The key to discovering how those parts move together to keep the operations engine running smoothly requires a high-level of accessible and current business intelligence.

Beyond traffic corresponding to days of the week that can be forecasted anecdotally (and often is!), finding the scheduling sweet spot is about matching the right people to the right time as revealed by accurate reporting. Once again, what POS data and reporting tools tell management and individual operators alike about transactional activity and about who was on shift during peaks in sales is a great starting point. 

When it comes time to decide who and how many should be on shift during major events or holidays, or when a new promotion goes live, those patterns in the data help to make the choice pretty clear for everyone involved from the corporate level on down.

4. Give employees visibility and ownership

Having an engaged and empowered staff who strive to do their best possible work is a rightly sought-after goal for any hospitality brand. Expressing a strong connection between performance and results as expressed in the data is vital to meeting that goal. It enhances the value of labor against its rising costs, which is an important facet of ROI.

Most people want to do their best at whatever they do from location managers to wait staff. No one wants to feel like a cog in the machine. Regularly showing staff where they can improve and who is doing the best job based on real business data is an important means to extending a sense of connection and ownership to them. It gives them a stake in the success of the business. By extension, it’s also the best way to get the most out of them as employees, which makes the expense of employing them more meaningful and more valuable to the organization.

As the cost of labor rises, being able to attach more corresponding value to that expense by investing in the best performers just makes sense. Collecting and reporting on real business data like this, held in the cloud and accessible while on the move via mobile devices can serve the brand, individual operators, and ultimately employees too. 

The right data, the right people, the right tools

Optimizing labor costs is best served from the top down with an investment in technology that enables operators. When brands invest in the right tools to measure incoming data, that’s the prime basis for success. Best practices can be more easily shared when the data is visible across multiple districts or stores. If one store consistently manages their labor to the company standard while others struggle, that can be leveraged to apply in the other locations for mutual success, too.

How do you manage the impact of your labor expenditure? On what basis do you currently plan hiring and scheduling, and what have been your greatest challenges and triumphs around it?

To explore this essential area further, investigate this white paper that explores the essentials of workforce planning.

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