One of the most common questions from restaurant owners is some version of: "Is my labor cost too high?" And the honest answer is — it depends on what kind of restaurant you're running.
A fast food counter and a white-tablecloth dining room have completely different labor models. Comparing them against the same benchmark makes about as much sense as comparing their menus. So before you panic about your number, let's figure out what your number should actually be.
How to Calculate It
Labor cost percentage is simply your total labor spend divided by your total revenue, multiplied by 100.
Total labor includes everything: hourly wages, salaried managers, payroll taxes, and any benefits you provide. Not just the hourly staff.
A lot of owners accidentally undercount by leaving out payroll taxes or their own salary. If you're an owner-operator drawing a wage, that counts too. The goal is an honest picture of what it actually costs to staff your business.
Benchmarks by Service Type
Here's where healthy restaurants typically land:
Fine dining runs higher because service is part of the product — guests are paying for an experience, not just food. QSR runs lower because the model is built around speed and volume with minimal table service.
What "Too High" Actually Looks Like
Being over your benchmark by 2–3 points isn't an emergency. Being over by 8–10 points consistently is a structural problem that won't fix itself. Here are the most common reasons labor runs high:
- Overscheduling. The most common one. Managers schedule based on habit or loyalty rather than projected sales volume. A slow Tuesday gets staffed like a busy Friday.
- Not cutting staff during slow shifts. The dinner rush ended at 8pm but everyone stays until 10. That last two hours can flip your labor percentage for the whole day.
- High turnover costs. Every time someone quits, you spend hours interviewing, onboarding, and training a replacement. That time is labor cost that doesn't show up on a schedule.
- Overtime creep. One or two employees regularly hitting overtime adds up quickly. It's often cheaper to hire a part-timer than to keep paying overtime rates.
- Revenue dropped but staff didn't. If your sales dipped 15% last quarter but you kept the same headcount, your labor percentage went up automatically — even if you didn't hire anyone new.
What to Do If You're Over
The good news: labor is one of the most controllable costs in your business. You can adjust it week to week in ways you simply can't with rent or equipment payments.
Schedule to your sales forecast, not to your convenience. If you're projecting a slow week, staff a slow week.
Start by pulling your sales-per-labor-hour (total sales ÷ total hours worked). This tells you how productive each scheduled hour actually is. Most full-service restaurants aim for $40–$60 in sales per labor hour. If you're below that, you have more staff on the floor than your revenue supports.
Then look at your schedule pattern over the last 8 weeks. Are you consistently over on the same days? That's a scheduling habit, not a staffing need, and habits are fixable.
A Note on Not Going Too Low
It's worth saying: trying to slash labor cost too aggressively causes its own problems. Understaffed restaurants give slow service, make more mistakes, burn out good employees, and lose repeat customers. The goal isn't the lowest possible labor cost — it's the right labor cost for your volume and service model.
Keep it in the healthy range for your type of restaurant and focus on growing revenue alongside it. That's how the percentage improves sustainably.