Dec 12, 2025
Calculate your restaurant labor cost percentage with our guide
Your restaurant labor cost percentage is the slice of your revenue that pays your team. For every dollar a customer spends, this is the piece covering wages, taxes, and benefits.
Most restaurants aim for 25% to 35%, but the right number depends on your concept. A fine-dining spot has a different target than a quick-service cafe. Getting this number right helps you manage your biggest controllable expense instead of just reacting to payroll surprises.
Think of your labor cost percentage as a financial health check. It’s one of the most important numbers on your P&L, right behind food cost. It’s easy to think labor is just hourly wages, but the true cost is much bigger.
To get a real grip on your numbers, you have to account for every dollar spent on your team.
Your total labor cost includes:
Tracking the complete picture gives you an honest look at your efficiency. An artificially low percentage from excluding taxes or benefits just hides problems. This metric influences everything from menu pricing to your weekly schedule.
Getting this number right is how you make smart decisions. The formula is simple:
(Total Labor Cost ÷ Total Revenue) x 100
This tells you what slice of every dollar earned goes to your team.
Your Total Labor Cost is more than just wages. To get the real picture, add up every staff-related expense over a specific period, like a week or a month.
Here’s a checklist for Total Labor Cost:
The foundation for this is your ability to accurately calculate payroll. If you miss anything, you'll get a misleadingly low labor percentage.
Total Revenue (or Total Sales) is the gross income your restaurant brought in during the same period, before any expenses.
Your POS system is your best friend here. Run a sales report for the same date range you used for your labor costs. Using powerful point-of-sale reporting can boost restaurant profits by giving you these numbers in a few clicks.
Quick Win: Every Monday morning, pull last week’s total labor costs from payroll and total revenue from your POS. Calculating weekly lets you spot and fix scheduling problems before they snowball.
Let's say you run a casual dining spot.
Your labor cost percentage is 30.4%. For every dollar earned, just over 30 cents went to labor. Tracking this weekly helps you spot trends and manage profitability.
So, you have your number. Is it good? It depends on your restaurant's concept. Chasing a universal number is a mistake.
A healthy labor cost is all about context. The ideal target for a QSR is different from a fine-dining restaurant needing sommeliers and skilled chefs. Your service model, menu complexity, and location all play a role. The goal is to find the sweet spot where your labor investment generates the best guest experience and profitability for your business.
A fine-dining spot invests in a large, skilled team to create a premium experience, justifying higher prices and a higher labor spend. A fast-casual joint is built on speed and efficiency.
Here’s a general guide to typical labor cost percentages.
Restaurant TypeAverage Labor Cost PercentageQuick-Service (QSR)25% – 30%Fast-Casual28% – 32%Full-Service / Casual Dining30% – 35%Fine Dining35% – 40%
These benchmarks provide context. If your casual dining spot runs at 42%, it's time to check your scheduling. If your QSR is at 23% but service is slow, you might be understaffed.
Key Insight: Use benchmarks to understand where you stand, then set a target that supports your restaurant's unique service style and financial goals.
Recent data shows most operators are in these ranges. You can explore more on restaurant workforce trends to see how you compare. A "good" labor cost is one that allows for a great guest experience without sinking your profits.
When your labor cost climbs, rising wages are an easy target. But the real culprits are usually hiding in your daily operations. These are the quiet profit killers that bloat your payroll without adding to sales.
Sloppy scheduling is the number one cause of high labor costs. It’s seeing three servers polishing silverware on a dead Tuesday, then being slammed and understaffed on a Saturday. That happens when schedules are built on gut feelings instead of data.
Common scheduling mistakes:
High turnover is a direct hit to your bottom line. Every time a good employee leaves, it triggers a chain of expensive tasks. You’re spending money on recruiting, interviewing, and onboarding. Then there’s lost productivity while the new hire gets up to speed.
Industry estimates suggest replacing one hourly restaurant worker costs $3,000 to $5,000. It's a massive, often invisible, drain on your profits.
If you’re constantly training new faces, find the root cause. Our guide on how to reduce employee turnover for good has strategies to help you keep your best people.
Are your employees busy or productive? Low productivity is often a symptom of unclear roles or a lack of training. If your host can't take a to-go order, you create bottlenecks.
Cross-training is your secret weapon. A server who can jump behind the bar during a rush is far more valuable. This flexibility lets you run leaner shifts without compromising service, which directly improves your labor cost percentage.
Knowing your labor cost percentage is one thing; lowering it is another. The most effective strategies are about smarter operations and better team management.
Your weekly schedule is the most powerful tool for controlling labor costs. Stop copying last week’s template. Use your POS data to align staffing levels with sales forecasts.
Quick wins for smarter scheduling:
Modern scheduling software can automate this. The Peppr integration with 7shifts helps you build data-driven schedules that cut unnecessary labor spending.
The revolving door of turnover is a huge hidden cost. Keeping your good people is almost always cheaper than finding new ones.
Investing in your team isn't a "soft" skill; it's a financial strategy. A positive work culture directly lowers your labor costs by reducing turnover.
This doesn't mean breaking the bank. Low-cost actions like providing clear growth opportunities, offering predictable schedules, and creating a respectful work environment make a huge difference. These efforts are fundamental to boost your pizza restaurant profit margin or any other restaurant's bottom line.
A more productive team gets more done with fewer people. This starts with training and optimizing your workspace.
Cross-train your staff. A server who can help at the host stand is more valuable. This flexibility allows you to run leaner shifts.
Next, look at your layout.
Small tweaks to your workflow shave minutes off tasks, and those minutes add up to significant labor savings.
Here are answers to common questions about tracking labor costs.
Calculate it weekly. A month is too long to wait. By the time a problem shows up on your P&L, you’ve already lost four weeks of potential profit. A weekly check-in lets you spot issues and adjust the next week’s schedule immediately.
Yes. If you work in the restaurant, pay yourself a fair salary and include it in your total labor costs.
Not paying yourself gives you a dangerously inaccurate view of your restaurant's health. It makes your labor percentage look artificially low. To know if your business is truly profitable, it must be able to support your salary.
Labor cost is one half of a more important number: your prime cost. Prime cost combines your total labor costs and your cost of goods sold (COGS), which is all your food and beverage spending.
While you want your labor cost around 30-35%, your prime cost is the king of metrics. Most successful restaurants keep their prime cost under 60% of total revenue. This gives you the most complete picture of your operational efficiency.
Managing your labor cost is a constant balancing act, but with the right data, you can win. Peppr gives you the real-time sales reports needed to build smarter schedules and make decisions that protect your bottom line.
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