8 factors that influence wage cost %

The control of wage costs is a high priority for all hospitality managers. However, there are many who aren’t aware of all the available options for fixing a wage cost problem. This holistic guide to controlling wage costs is designed to help managers fulfil their most important financial responsibility.

There are 8 factors that influence your wage cost percentage. A sound understanding of each one will help focus your efforts when managing your wage cost budget.

  1. Staffing levels

Rosters should be written by referring to an accurate forecast of revenue, and the forecast wage percentage should be within your budget target. Reducing rostered front of house hours may seem like an easy way to reduce wage costs, but the problem with this approach is the risk that front of house staff are no longer able to calmly serve, sell to and satisfy guests. Such a situation makes it difficult to achieve maximum customer average spend. It is possible to rectify a wage cost problem by adding sales staff to the front of house roster, rather than removing them.

  1. Production and service systems

Many businesses struggle to balance wage costs because their methods of production and service are too labour-intensive when compared to the prices they charge for their goods and services. If wages can’t be brought under control by tight rostering, a critical assessment of how things are done could highlight some opportunities.

Do chefs spend unprofitable time in prep, doing labour-intensive tasks that reduce the profitability of the menu? Could prep tasks be simplified to reduce prep time? Could pre-prepared or semi-prepared products be bought in? Is the cost of delivering full table service affordable, when compared to the prices customers pay? A form of hybrid service may be more affordable, where customers order food via a mobile app and there is limited table service for drinks and food delivery. Are the best front of house salespeople given enough opportunity to engage with customers and upsell, or are they too busy with tasks that don’t generate revenue such as running food or preparing drinks? A rethink of front of house job assignment may pay big dividends. Imagine a team where the less skilled (and possibly cheaper) junior front of house staff do the more labour-intensive work like delivering food and clearing tables, while the skilled sales people interact more with customers and encourage them to spend.

  1. Pricing

While it might be possible to make a wage cost problem disappear by simply increasing prices, it should only be done as a last resort in a market where there is a lot of competition, as the risk of pricing yourself out of the market is real. Customer loyalty relies on the perception of value for money. Allowing a chef to design a dish, cost it and apply a margin to arrive at a selling price is problematic, as it could push your business above the market ‘sweet spot’ over time. It is better to give a chef pricing guidelines and make sure there is an appropriate profit margin on each menu item within those guidelines.

  1. Selling skills

An effective way to reduce wage percentage is to increase customer average spend with more active selling and visual merchandising. Most customers don’t have a set budget in mind when they go to a hospitality venue. If they are asked the right questions, presented with the right products and followed up carefully, they will spend. Is your front of house team stacked with active salespeople who love to hunt for sales opportunities, or passive service providers who are reactive? An active front of house salesperson can generate 30% more revenue than their more passive team mates. If each of your customers spent just $1 more, what would that be worth to you in a year?

  1. Productivity of staff

Have you ever noticed how efficiently the pack-down tasks can be done at the end of a shift when the team have a party to go to after work? When staff are paid for their time, there is a tendency to expand work to fill out the available time unless there is a reason to move quickly. How much actual work is being done for each hour that staff are being paid? Are they delivering a comfortable level of performance or optimum?

Have your supervisors and managers been trained to carefully choose, train and lead their teams in order to ensure they’re productive? Have staff been trained to complete recurring tasks within standard times? Are staff challenged to complete task lists within a time limit? Standard times allow supervisors and managers to control productivity without having to be present. Most productivity problems occur outside of peak service times: during the pre-rush wind-up and post-rush wind-down. These are the times when managers and supervisors are likely to be doing administrative tasks in an office or other area away from the rest of the team.

  1. Average rate of pay

Are you paying more than necessary to get the work done? Do you use junior staff where possible? Do you use unqualified staff in your kitchens wherever possible? Do you have your most expensive staff on penalty shifts?

  1. Staff turnover

Every time a member of staff must be replaced, it costs $5,000 – $10,000 in administrative time to recruit and train a new employee, depending on their role. If you hadn’t lost the staff member, that valuable time could be devoted to your customers. If you have high staff turnover and you don’t recognise it as an issue, you may attempt to reduce your wage costs by slashing rosters. Reducing staffing when it is needed most can damage customer perception and reduce levels of repeat trade.

  1. Absenteeism

Since the pandemic, this issue has become more problematic. A senior manager recently mentioned to me that they weren’t convinced by a number a staff who took sick leave, sighting Covid as an all too convenient excuse. Committed staff don’t take sick days unless they are seriously crook, while others take them regularly for many reasons. When a permanent employee takes a sick day, they must be replaced while you pay the sick day, thus doubling the hourly rate for the same work being done.

Excessive absenteeism is a symptom of poor team leadership. Staff who are motivated and committed tend to be reliable because they don’t want to let their fellow team members down. One way of reducing absenteeism is to offer permanent staff a bonus in the form of extra annual leave if they don’t take any sick days in a year.

The takeaway

The strict control of wage costs in a hospitality business can’t be achieved by just slashing staff rosters. It can only be achieved with the full cooperation of managers, supervisors and staff. Such cooperation is possible, but only if managers have the skills to effectively choose, train and lead their teams. From there they can accept full responsibility, authority and accountability for the results.

Chris Lambert