Four Cost Cutting Rules of Closing Restaurants

In managerial economics, you’re taught to think outside the box for a lot of business situations. Closing is one of the most stressful aspects of business. Especially if you’re in charge of closing a fast food restaurant. There’s pressure to keep the cost of labor down as well as get everybody out in a timely manner. If only there were a way to cut down on cost and get people out on time. Luckily, there is a way to do this.

Rule #1: Don’t Be Scared of the Cost of Labor

When you try to get people out on time, it’s not a good idea to get hung up over the numbers. Sure, it might look bad if you kept someone for an extra hour to help you clean. But you have to look at the benefits against the costs. For example, if your employees are always scheduled to leave by 2 AM and they always leave by 3 AM, it would cost less to have one other employee stick around for an additional hour.

The additional hour applies to either the time that revenue can be brought in or during the time afterwards when you’re cleaning. Let’s say that shift leads were paid $8.25 per hour and regular employees were paid $7.25 per hour. Here’s the situation:

One shift lead and one employee are closing that night, but it would be helpful to keep a second employee around for an additional hour, if they agreed to stay. The restaurant closes at midnight, but your second employee is scheduled to leave at 9 PM. It usually gets really slow around 10 PM. But lately, it’s been pretty busy and your employees were caught off guard. Instead of leaving at 1 AM, they’re stuck cleaning until 2 AM. Do you keep the second employee around for an extra hour, or keep the other two around for an additional hour? The answer: Keep the second employee for an extra hour.

Numbers Don’t Lie: How Math Helps

Every shift lead who is closing should understand how to do some quick math on their own so they can judge whether or not they should keep the second employee longer. In the situation above, the cost of labor increases by $15.50 when it’s just the two scheduled employees. This means that during the three hours between 9 PM and 12 AM, the cost of labor is $46.50, which is a sunk cost due to being open.

Here’s how most shift leads see keeping the extra employee: “If I keep this guy for another hour, it’s like keeping all three guys for another hour. That’s too much money out the window.” The reality of it is that /-keeping the second employee only increases the cost of labor by $7.25 per hour. Keeping this in mind, you could keep this guy around for two additional hours and save a dollar per night if your scheduled employees are clocked out on time. This may not seem like much, but over time, you could be saving a lot of money.

So how much does the cost of labor actually turn out to be? Well, if your employees are scheduled to be out by 1 AM at the latest, and you keep the second employee around for another hour, the scheduled employees will cost $62 if they’re out by 1 AM. Since they’re usually out by 2 AM, this cost is $77.50. By having the extra employee around, the cost will only amount to $69.25. This saves you $8.25 per night. Here’s the math behind it:

9 PM – 1 AM = 4 Hours; 1 Hour = $15.50; 4 Hours x $15.50 = $62

9 PM – 2 AM = 5 Hours; 1 Hour = $15.50; 5 Hours x $15.50 = $77.50

9 PM – 10 PM = 1 hour; This Hour = $22.75; 10 PM – 1 AM = 3 Hours; These 3 Hours = $46.50; $22.75 + $46.50 = $69.25

$77.50 – $69.25 = $8.25 per night saved.

If $1,000 was the revenue for the day and stopped at 9 PM, while the cost of labor was 23 percent by 9 PM, not keeping that employee will give you a labor cost of 30.75 percent. Keeping that additional employee for an hour reduces it to 29.925 percent. Again, this may not seem like much, but every little bit helps. Especially over time.

Savings Are Potential Bonuses

Saving just $8.25 per night might not seem like much, but we just cut the shift lead’s labor by one hour of his time. If you’re only open 300 days out of the year (6 days x 50 weeks), then this nightly savings adds up quickly. You would be saving your business $2,475 per year just by keeping that one employee around for an hour. While most managers might say that this isn’t enough, this could easily turn around as a $1,500 Christmas bonus.

Rule #2: Understand How Efficiency Works

Of course, there are more ways to cut down the cost of labor other than just keeping one employee a little longer. Efficiency is rule number two when it comes cutting down this cost. If you have a line where your food is made, you don’t want to overload it with people. In a pizza restaurant setting, you want one person on meat, one person on veggies, and one person on cheese. If it gets busy, just one additional person should be added to that group.

I’ve personally seen pizza parlors that get busy in Eugene that have too many people working in close quarters. If three people need to get pepperoni, they’re going to be slowed down by the one bin of it. This is because there will be other hands trying to get it as well. Try to find ways to be more efficient. I’ve seen some places tell people they need to help by restocking or cleaning before they clock out for the night. This is great, but doesn’t do your business any good if people don’t actually do it before they clock out.

Rule #3: Don’t Be Wasteful

How much does your business spend on trash bags? Believe it or not, this is one silent profit eater. If your business has a policy of taking all trash bags out by closing, you’re most likely wasting money. Here’s one rule that many custodians use to save money on trash bags: If it’s less than 1/3 or half-way full, leave it alone. In foodservice, this is one huge way to save money. If you have a trash can that be emptied out every three days because it doesn’t get much each day, then that’s a savings of 20 trash bags per month!

Another common point of waste tends to be utility cost. If you’re cutting down on labor, it does you absolutely no good if you’re going through more water or electricity than is needed. When it’s time to close down the business for the night, make sure you turn off half of the lights. This will cut your electricity costs by nearly 50 percent if the lights are mainly what’s on after you’re closed. While one hour doesn’t seem like much, over 25 days of monthly operation, you’re saving 25 hours worth of electricity.

There are plenty of other wasteful habits that kill profits as well. These habits include using too much soap or paper towels when washing hands, not paying attention to portions when making food, and using too much cleaner. If restaurants really cared about cutting the cost of labor, they wouldn’t use reusable paper towels. When they’re washed and reused, they don’t work as well as the new ones do. People will sit there and re-clean one spot three times because of residue left over. Just use a bunch of microfiber towels and wash them each week.

Rule #4: Use Common Sense and Understanding

When I say to use common sense and understanding, I’m really saying that every manager should understand that there will be anomalies throughout the year and, thus, should plan accordingly. If you’re in a college town and you run a pizza parlor, make no mistake when it comes to finals week and move in/out days. If you don’t prepare by having enough people staffed or enough food prepared, your cost of labor will skyrocket exponentially.

Similarly, if you have too many people scheduled on a slow day, your cost of labor might increase past 60 percent. Be sure to know when to send people home. A better way to hedge against labor costs is to keep records of how your business did each day. If it was slow during the day, but picked up at 7 PM, schedule people to come in between 7 PM and 12 AM. This not only helps your closing times, but you can send people home when needed as well.

If you have food that can be in the refrigerator for a few days, then prepare enough for one day and enough for each item to be around for an additional day. Likewise, if you had an unusually busy day, don’t let people go home just because it’s slowing down near the end. Give them something to do. Remember the first rule: Don’t be afraid of the cost of labor. An additional $7.25 per hour is always less than an additional $15.50 per hour.

Final Tip: Keep Daily Records

Something that I don’t understand about most businesses is that they don’t keep good records of each day. If I had my own restaurant, I would require all shift and end of the day figures to be recorded in an Excel spreadsheet. This is so I could not only find anomalies, but so I know when I need to have a promotion to boost sales. Estimating the demand during those times of the year actually help you spot problems.

If I knew that Christmas eve was a bad night for business, I wouldn’t just not open for the day. I would run a Christmas special like a “buy one get one” or “Christmas family dinner – 30% off orders of $20 or more.” The same goes for finals week in a college town. It’s already busy, so let’s use all of our manpower and make it busier with a “Half off energy drinks” or “Finals week special” sort of promotion.

This is why it’s so important to keep records. Not only will you get bonuses and raises as a manger, you might be able to convince the owners to give bonuses and raises to your employees as well. When people know that they can actually get a raise or bonus rather than the potential for one, they work for it. Look for cuts in cost and look for ways to be more efficient. Follow these four rules and this tip and I promise you will see more success in your business.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s