 Did you know that the typical margins of a food and beverage restaurant is only 5 to 10 percent? Today we're going to be talking about how do you calculate your labor cost so that way you can have more profits in your pockets. Hey, it's Wilson here, zero entrepreneur multiple seven figure business owners. If you guys are into business, if you guys are into small business or wanting to build your own restaurant, make sure you guys subscribe for this channel because I'm going to be sharing a lot more of my experiences, what has worked, what has not worked along with you in this whole journey. Do you want to know the difference between running a business that's going to run you to the ground pulling your hair out and just stressing out left, right and no tomorrow versus a restaurant that allows you to become a vehicle that gives you the freedom to travel, gives you the financial freedom to take care of the people you love. It all comes back down to how you manage and run your restaurant and more specifically understanding how your labor cost works because it's not just as simple as understanding your hourly wage. You need to take everything into account, which is the reason why we're shooting this video for you today. So then that way you can understand everything that entails with labor costs, calculate that and work it into your math. So then that way you can have a very successful restaurant that allows you to profit much more than 5 to 7 percent. So without further ado, let's dive into what labor cost is. Labor cost is much more than just the hourly wage that you pay your employee. It also includes the benefits, the incentives that you're paying, the bonuses, the payroll taxes, the admittance, the training costs, the uniforms, the meals, all the subsidies. At the end of the day it is a huge chunk of expense if you are not aware of that. So it is our responsibility to make sure that we work this whole cost into the math so then that way there are no hidden things that are pulling us behind. That's the reason why you need to understand your labor cost. So what is the goal of understanding your labor cost? It is to understand where we stand on the benchmark and where we stand across the industry and by us understanding of all these different costs, we understand which levers to pull in order for us to be able to benefit from that in order for us to be able to put more money into our pockets. And at the end of the day, with restaurant business businesses running at 5 to 10 percent margins, the more money you save from labor costs, the more money you're going to be able to put into your profits and to put into your pocket. That's the goal of us understanding labor cost is to understand the whole picture. Too many people venture into the business world without understanding their numbers and that is a big no-no. So now that we understand what is labor cost and the importance of labor cost, we're going to talk about how are you going to be able to calculate your labor cost. And there are two ways to this. First, labor cost as a function of sales. Second, labor cost as a function of your total cost. The first way to calculate labor cost is as a function of the revenue. As we stated, these are the different labor costs involved, wages, training, benefits, sick roll, sick days, insurance, all these different things. I like to bundle them all up together because I don't want these to fall between the cracks as a miscellaneous item in my books because once it becomes a miscellaneous item, I don't know where to categorize it and I don't know which levers to pull. That's the reason why I put them all together as labor costs. Now that you understand the amount of money and the expenses that you put into labor, then you can divide that by the total revenue per year. Times that by 100, you get your percentage over the course of the whole year. So far as an example, our restaurant, we make a million dollars in revenue before taxes and our cost of all the different labors involved is $285,000. Divide that times 100, you get your percentage of labor as a function of your revenue, 28.5%. Now you may be thinking, why is this number important? This number is important because we always want to be able to lower this number. If you're standing at 35%, that is a very high labor number and that is something that we can work on in terms of minimizing that. We need to make sure that we are at the benchmark. We're in industry norm so that way we know that our money is the most efficient, that our labor is the most efficient it can get. The second way of cuckooing labor costs is as a function of total operating costs. Now what is total operating costs? They include the rent, the cost of good souls, which is basically all the ingredients, food costs whatsoever, your marketing costs, all the miscellaneous costs to you to operate your restaurant. Something that is for you to know is that labor costs should be included in the total operating costs and this is a mistake that a lot of people do is that they don't include the labor cost. It is basically what it takes to operate your business and they should all be included into the total operating costs. Now as an example, how do you calculate that percentage? Well divide the total labor costs by the total operating costs times 100 equals your percentage. As back to our same example that we have a revenue of $1 million for a restaurant over the course of the year, out of the $1 million, $850,000 is our operating costs of running the whole restaurant and out of the $850,000, $285,000 is our labor costs. Now you use this divided by the total operating costs times 100 equals your percentage that you've invested in operating labor costs. The importance once again of understanding your labor costs is that it acts as a benchmark for you to be able to pull levers without you understanding how much labor goes into as part of your labor, as part of your total costs you cannot pull these levers in order for you to profit more. Just imagine that you had an extra manager in here that's costing you $80,000 because of you doing this math you understand that percentage wise is too high which is now you're going to be able to be play detective and to find out where that redundancy is and to cut that extra cost which in turn puts more money into your pocket. So there you go. How do you calculate labor costs? It is super important for us to understand how we could do our labor costs without that clarity. We do not know what levers to pull once again in order for us to make the changes and to improve upon the business. At the end of the day if you want to run a fully efficient business a fully efficient restaurant that's going to allow you to profit then you need to know your numbers and labor costs is one of the biggest costs out there that you can control which is the reason why we did this video to help you and to show you how to do the calculations. Once you do the calculation, use it as a benchmark and challenge yourself to see how you can lower that month after month and when you can do that in over time you're going to be able to save and shave off different percentages let's say even if we cut this down to 28% you're saving 5% and of that 5% those are all pure profit that you're going to be able to put into your pocket without understanding the numbers you're not going to be able to understand what changes to make that's the reason why this is so important I really hope you enjoyed this video because this is so important and if you find any value in this video whatsoever make sure you smash the like button and subscribe along the journey because I'm going to be sharing a lot more business experience that has worked in my time with you I really hope you enjoyed this video I'll see you guys next time