Labor cost is the expense that keeps most small business owners up at night. Unlike rent or utilities, it's variable - and it's largely within your control if you have the right information at the right time.
Here's a practical breakdown of how to manage labor cost without over- or under-staffing.
Know your target labor cost percentage
Before you can manage labor cost, you need a target. Industry benchmarks:
- Full-service restaurants: 30–35% of revenue
- Quick service / fast casual: 25–30%
- Retail: 15–25%
Your number will vary based on your market, wage rates, and business model. The key is setting a target and measuring against it consistently - not just at the end of the month.
Calculate projected labor before you publish
The most powerful thing you can do is know your projected labor cost before the work week starts, not after. This means:
- Each employee has an hourly rate on file
- Your scheduling tool multiplies hours × rate for every shift
- You can see the total before you hit publish
If you're $800 over budget on Tuesday, you can trim a shift. If you discover it on Friday, you're stuck.
Separate fixed vs. flexible labor
Not all labor is equal. Some positions are fixed - your opener, your manager on duty. Others are flexible - extra floor staff, additional support on busy nights.
Build your schedule around fixed labor first, then layer in flexible staff based on projected volume. This gives you natural flex points to adjust when revenue is running light.
Watch overtime before it happens
Overtime is expensive - often 50% more than regular wages. If an employee is at 36 hours by Thursday, you should know that Thursday, not when payroll runs.
A good scheduling system flags approaching overtime in real time. You can redistribute hours, bring in a part-timer, or adjust Friday's schedule before you're paying overtime you didn't budget for.
Use historical data to staff smarter
Your busiest day last week is probably your busiest day this week. Look at shift completion data, headcount by day, and cost by day over the past 30 days. These patterns tell you where you're overstaffed (easy cost savings) and where you're understaffed (lost revenue and burned-out employees).
Labor cost management isn't about cutting staff - it's about having the right people at the right time, with full visibility into what it costs. ShiftsLine's reports show you hours, cost, and headcount by day so you always know where you stand. Get early access.