The Basics of Restaurant Management in 6 Steps

The simplest way to figure labor cost is to tally the total wages paid and divide that number by the total sales. Depending on what you hope to learn, you can shift the timeframe from one day to a week, month, or year.

For example, if you want to know if the new clock-in times you rolled out on the last schedule have had an impact, you need to know the labor cost for the previous week. To assess the general health of the business, a month-long range might be more useful. Just be sure that you are using wage and sales numbers from the same timeframe before you plug them into the formula:

(Total wages / total sales) x 100 = labor cost percentage

The wage figures you need will generally be in the payroll processing reports that your payroll processor provides along with your payroll checks. The sales numbers can be pulled for the same period from your sales reports. Nothing makes labor costing simpler, however, than using a high-functioning POS that acts as both your register and your time clock.

A well-integrated POS will have your sales and labor figures in one place and allow you to edit your parameters to tailor a report to produce only the information you want. The POS does the math for you, showing your labor cost percentage in real time.

The Hourly Sales Report in the Toast POS shows your labor costs as a percentage of net sales in real time, so you can make immediate staffing adjustments. (Source: Toast)

Most restaurants will look at their overall labor costs as well as separate FOH labor from BOH labor in their daily reporting. This allows managers to see emerging trends in the business and identify opportunities to lower labor costs.

There are more complex methods for figuring different kinds of labor cost. When forecasting for the year ahead, figuring a labor cost by labor hour is helpful. If your restaurant operation is underperforming and you need a more detailed picture of where each dollar is going, figuring labor as a percentage of total operating costs is ideal.

You’ll most often hear restaurant managers speak about food cost. Typically, this is a catch-all term that includes both food and beverage cost. There are two types of food cost to keep in mind: per-item (or per-plate) food cost and overall food cost. Restaurant managers should know how to figure both, as each number is useful in different ways. Per-plate food cost is the best foundation to set your menu pricing. Overall food cost gives you a more accurate idea of your profit margins and how much revenue is flowing through to your bottom line profit.

If you only serve one menu item—which some classic mom-and-pop eateries do—then you may choose to only figure per-item food cost. Most restaurants have more than one item on the menu, however, and the cost per plate can vary wildly between a filet mignon entree and a grilled artichoke appetizer. Figuring the overall food cost of your entire operation provides a better picture.

The simplest way to figure food cost is calculating the cost per menu item. For small restaurants that primarily sell a single item—like tacos or burgers—per-plate food cost can give a pretty full picture of profitability.

To figure per-plate food cost you should:

• List all the ingredients: A burger ingredient list would include a bun, meat, condiments, toppings, and any side items like fries. Don’t forget the garnishes; even pickle spears must be counted.
• Cost each ingredient: Suppose you portion out your own burger patties from meat that you purchase by the pound. A quarter pound burger would give you four portions per pound. Divide the total pound cost of the meat by four to get the cost of one portion. For example, if the total cost of one pound of meat is $4, then the portion-cost of a single patty would be $1 (or $4 for four patties).
• Combine ingredient costs: Let’s say that, in this case, our bun, patty, lettuce, cheese, fries, and pickle spear add up to a plate cost of $2.75.

If your food cost target is 25%, then you know the menu price for this gourmet burger and fries should be $11. Or:

(Item cost x 100) / target food cost = menu price

In this case:

($2.75 x 100) / 25 = $11.00

If all this restaurant sells are burger baskets, and they are priced with the target food cost in mind, a restaurant manager can feel secure that, under normal operating conditions, costs will be in line. They can easily forecast the number of orders on hand based on the inventory as well as spot waste or theft issues.

For example, if the restaurant has $275 of inventory on hand, they should be able to make 100 orders of this burger. If the inventory runs out after 65 orders, the manager knows immediately that something is not operating correctly. It could be spoiled product or lack of portion control in the kitchen.

Just like figuring the food cost per plate, figuring overall food cost begins with your purchase costs. In this case, we’re talking about the overall amount of money you spent on purchases in a specific timeframe. Then you’ll compare your total purchases with total sales (minus comps and spillage) to figure out what percentage of your sales went to food and beverage purchases.

The math looks like this:

[Purchases / (Total Food Sales – Comps/ Spillage)] x 100= Overall Food Cost Percentage

For example, if in the course of a week, a restaurant spent $3,000 on food purchases, sold $14,000, and had $1,500 in comps and food spillage, the total food cost for that period would look like this:

[$3,000 / ($14,000-$1,500)] X 100 = 24%

Beverage costs are determined in the same way. To gauge the overall health of your business, you’ll consider food and beverage costs together as a combined percentage of sales. But to get the most insight into where to alter your supply ordering, recipes, or staff training, you should do the math for beverages separately, too.

To get the most detailed picture of your operation, separate your beverage COGS and sales by liquor, wine, beer, and non-alcoholic beverages. Figuring each of these overall costs separately shows you where your operation has the greatest opportunities to improve.

One of the best things you can do to control costs is increase sales. You’ll often hear veteran restaurant managers say “sales fix all sin.” There are several strategies for increasing sales.

Upselling

Upselling is the most common way to increase sales. Good restaurant managers train their order-taking staff to suggest specific, additional menu items to customers. Upselling can look like:

• In a full-service restaurant: Challenge your server team to add an additional course—like an appetizer or dessert—to their orders during a shift.
• In a quick service restaurant: Program your point-of-sale (POS) to prompt suggested add-ons based on a customer’s order. This works equally well for staffed terminals in a counter-service restaurant or for self-service kiosks.

You can also drive sales via loyalty programs. Some mom-and-pop shops may prefer a simple punch-card loyalty system. But these days you can find excellent and affordable options for loyalty apps, many of which are built into a POS system. The task of designing and implementing a loyalty program would typically fall to the restaurant manager.

Market the Restaurant

Finally, restaurant managers may implement a marketing strategy to grow sales. Restaurant marketing comes in many forms, including starting a loyalty program, contributing to community fundraisers, buying advertising in local papers, and creating social media ads.

A 2022 study by PYMNTS found that 42% of customers said loyalty programs encouraged them to buy from restaurants. So if your restaurant doesn’t yet have a loyalty program, adding one is an excellent way to grow sales. Other marketing strategies for restaurant managers include:

• Email marketing: Use customer information from your reservation or POS system to create lists of customers by interest (such as wine lovers) or occasion (like January birthdays) and send relevant offers directly to them.
• Social media marketing: Feature your food, beverages, and upcoming events on social media channels like Instagram, TikTok, and Facebook. Find additional strategies in our guide to social media marketing.
• Seasonal events: Look for upcoming local and national events that tie easily into the theme of your restaurant. A family-style Italian restaurant with a large private dining room might want to advertise with a local bridal show ahead of wedding season. A Mexican restaurant would want to be sure to capitalize on National Margarita Day or National Taco Day.
• Internal marketing: There’s a reason you still see table tents and rack cards in check presenters—they work. Customers in your dining room are a captive audience, so don’t forget to promote upcoming events directly to them. If you’re accepting reservations for your New Year’s Eve bash or offering a new happy hour menu, print eye-catching rack cards to let customers know.

Suppose your food costs are in line, but your labor costs are consistently off target. There are some specific steps a restaurant manager can take to have an impact on labor cost.

Use Technology to Optimize Schedules

Base your staff’s shift start times around when the restaurant is busiest. A POS system can easily show you your sales per hour, making this strategy a snap. A POS that syncs with your scheduling software can also enforce the schedule by preventing employees clocking in early for scheduled shifts. It may not sound like a big deal, but if you have employees clocking in five to 10 minutes early every day, it can add up to thousands of dollars over the course of a year.

Update Your Service Style

The fastest-growing style of restaurant is the Quick Service Restaurant (QSR) model, where customers order at the counter, pay in full, and then wait for their food. In some cases, QSR restaurants give customers a number to take to a table and have service staff to run the food to them.

Another option is to place scannable QR codes on tables or order counters, allowing customers to order and pay via their smartphones. QR code systems typically also include optional alerts to notify customers when their food is ready so they can pick it up from a service window themselves. Models like this create only one hourly labor cost center and can help keep costs down.

Cross-train Your Team

In addition to enabling you to reduce staff when business slows, cross-training makes it less likely that you will be short-handed when an employee is out sick or running late. Cross-training is probably the best way to reduce labor cost in the back of the house, as well.

Spread Sidework Tasks Through the Day (and Week)

Sidework is the restaurant industry term for the non-service-related tasks that must be completed to keep the restaurant running. Tasks like cleaning reach-in refrigerators, folding napkins, polishing glasses, and organizing the dry storage room are all sidework. These tasks can be tackled during lulls in service, allowing you to save labor hours at the beginning or end of a shift.

Avoid Overtime & Break Penalties

Federal law requires employers to pay time-and-a-half for hours their employees work over 40 in a workweek. Some states require time-and-a-half pay for hours that are worked over eight in a day. Other states require employers to pay a full hour’s wage as a penalty to staff that do not get a scheduled meal break.

Check your local labor laws and keep an eye on the hours your team is working to avoid accruing penalties. These are an avoidable cost, and the best restaurant operations plan ahead to run an efficient operation.

Don’t Forget Your Payroll Liabilities

Employers should expect to pay an additional 10% above the cost of employees’ wages to cover payroll taxes, unemployment taxes, and workers’ compensation insurance. If you are targeting a 30% overall labor cost, your daily overall labor costs should be 20% or lower to stay in the 30% target range. In most locations, the kitchen staff earn a higher hourly wage than the front of the house staff, so it is not uncommon to see daily labor costs break down to 12% labor in the kitchen and 9% in the dining room.

Controlling food and beverage costs are as important as controlling labor. Controlling food cost requires the cooperation of your whole staff. The manager placing the orders, the prep cook stocking the new deliveries, and the cook or bartender preparing the final dish or drink for customers all have hands-on opportunities to impact food cost. On a lesser scale, every staff member that enters a walk-in refrigerator or dry storage area can affect the spoilage, spillage, or shrinkage of a restaurant’s supplies.

Avoid Spoilage & Spillage

Spoilage is just what it sounds like—products spoil before you have a chance to sell them and turn a profit. Spillage refers to items that are prepared but cannot be served or sold. A bottle of milk that expires before you can sell it is spoilage; a milkshake that gets dropped on the floor and breaks is spillage. In either case, your restaurant loses money on these items.

Some spoilage or spillage is inevitable. But a restaurant manager can train employees to reduce their occurrence. The team in the kitchen and behind the bar can reduce spoilage by labeling all food items with the use-by date, and store them in accordance with FDA food storage guidelines. New items should be stored behind older items so that items closer to spoilage are used first—as most health departments advise “First In, First Out” (FIFO).

Spillage is typically caused by human error. These items are usually errors like steaks that are not cooked to the correct temperature or cocktails that a customer did not enjoy. The staff that takes orders, whether at a counter or tableside, can help prevent spillage by accurately answering questions about the menu items and avoiding mis-rings in the POS.

Know Your Inventory

You can’t prepare and serve what you don’t have on hand, but you also don’t want to over-order inventory, especially perishables. Accurate inventory checks and sales forecasting help managers keep stock levels on par with daily sales. Keeping par with sales is a huge way to reduce spoilage.

Regular inventory counts help manage par levels and prevent over-ordering, especially on fresh foods. For smaller operations with tight margins, a weekly inventory may be more helpful than a monthly count. Weekly inventories allow you and your team to become deeply familiar with your physical inventory. If theft is contributing to a spike in food cost, a weekly inventory will help pinpoint when the product is disappearing as well as telegraph to any would-be pilferers that someone is keeping a close eye on the stock.

Deter Theft

Shrinkage is the term used to describe unexplained missing product. If after an inventory count you have less product than you expected based on your sales, voids, and comps, then you have shrinkage. The most common reason for shrinkage is theft by customers or employees. Investigating shrinkage is one of the most frustrating challenges a restaurant manager will face, because the people with the greatest opportunity for theft are the restaurant’s employees.

Customer theft is typically obvious. A customer may steal the tip jar from a service counter, grab a bottle of wine and make a run for it, take cash off of a neighboring table, or leave without paying. Employee theft can go unnoticed for days, weeks, or months.

There are some things you can do to deter thrift before it happens.

• Install security cameras: And make sure your staff and customers know that you check them.
• Perform regular inventory counts: As mentioned above, if your staff knows that you regularly count your on-hand supplies, they are less likely to steal. And on the off-chance that some product is missing, regular counts (ideally weekly) help you identify losses before they are out of control.
• Compensate your staff well: Employees who are well-paid are less likely to steal. A one-time payday won’t be worth risking their job. If you underpay or overwork your team, it could lead to the sort of ill will that leads to theft.
• Learn basic bookkeeping: Bookkeepers are an excellent timesaver for restaurant managers and owners. But they are also in a unique position to embezzle from the restaurant. So, it is important to know what you are looking at when checking the restaurant’s books so you can identify suspicious line items and transactions.

Weekly and monthly manager meetings should survey the daily reports alongside profit and loss statements (P&L) to identify trends in the restaurant. A regular meeting of the management team, even if it is only two people, is the best time to make plans and set goals for the upcoming weeks and months ahead.

In these meetings, teams should review:

• Profit and loss statements: Many restaurants find it helpful to compare apples-to-apples by running their profit and loss reports on a 7-day week and a 28-day cycle to avoid inflated numbers for months that have more Fridays and Saturdays. An abbreviated weekly P&L review helps your team keep track of trends and make adjustments.
• Upcoming operational changes: Sometimes you need to rearrange the floor plan to accommodate additional tables for two on Valentine’s Day or close part of the restaurant for a private party. Ensure that all members of your management team are aware of these expected changes and know their roles in creating a smooth operation for the rest of the team.
• Marketing strategy: Are there upcoming seasonal events that are relevant to your brand? Do you have email, text, and social media campaigns to promote them? Are your previous marketing efforts paying off?
• Local partnerships and philanthropy: Partnering with local brands is a great way to foster a sense of community in your restaurant. So are things like sponsoring a local Little League team. Nonprofit fundraisers for Alex’s Lemonade Stand or No Kid Hungry are great places to collaborate with other restaurants in your market.
• Forecast future sales and cost targets: All manager meetings should look at the sales and business forecast for the upcoming week or month. Meetings should end with strategies to maintain targets and increase sales for the week ahead.

Forecasting is a tool utilized by all major restaurant and hospitality groups. Small restaurants might think that they lack the resources to create accurate forecasts, or that their operation is too small for forecasts to matter. Forecasting, however, is a key to planning ahead for major purchases and growing your operation.

In its simplest form, forecasting is looking at your past sales, guest count, and labor costs to find patterns that might apply in the future. You might notice that on the previous four Saturday nights, you sold 50 pork chop entrees. So, you’ll want to be sure to have enough meat delivered on Friday to maintain that momentum. Your previous scheduling reports might show that you have the most requests off on Sundays. If your restaurant is busy on Sundays, you will want to be sure that any new hires have availability to work Sundays.

Like many processes in restaurant management, there are more complex ways to forecast. The more complex the forecast, the more useful information it can give you. If the concept of forecasting seems daunting, you can start small. Look at your sales and labor from the previous week and use that information to inform choices in the week ahead. Once you feel comfortable with that data, try to use previous weeks’ invoices to predict future ordering needs. Then expand backward; start looking at the previous year’s patterns to forecast the weeks and months ahead.

The biggest gift that all this tracking and reviewing gives a restaurant manager is the ability to notice the operation around them. Noticing the operation will quickly lead to noticing patterns, and then feeling confident making split-second decisions in the heat of the moment. The best restaurant managers become so fluent in noticing patterns and directing operations that forecasting becomes second nature.

No restaurant operation is too small for a training program. If you’re not sure how to put one together, start by considering each role in the restaurant and writing out what a typical workday looks like for them. You could assign this task to a star hourly performer on your team, if your management team is strapped for time. From these notes, you can create a simple checklist to ensure that you—or one of your star staff members— walks new hires through every necessary task.

Most cloud-based POS systems allow you to give new staff a limited login to create practice orders and self-train on the system without saving actual data. If you rely on integrated apps for scheduling and employee management, they typically offer training videos that show your staff the granular details of posting their availability, requesting time off, and requesting adjustments to their time cards.

Training is not only a one-time job. A good training program is continuous. The most straightforward way to include training on a daily basis is to hold a staff meeting at the beginning of each shift. This should be an opportunity to get everyone on the same page with daily specials or 86’d items and refresh menu knowledge. A pre-shift meeting is also a great forum for public praise and recognition, as well as an opportunity to set team goals or brush up on best practices with the POS or scheduling software.

There are some simple ways to motivate staff and train continuously:

• Correct like a coach: When you see an opportunity for one of your staff members to improve, don’t get angry. It is best to assume that he or she simply doesn’t know how you want a particular task done. Approach your staff like a coach who is helping this staff member reach his or her full potential. Be sure to tell them the “why” behind your correction. As in, “We use one door for entering the kitchen and another for exiting it so people don’t crash into each other.”
• Offer perks: A simple employee discount of 20% to 30% is a common perk. Some restaurants have a weekly or monthly staff lottery that entitles the winner to a dinner for two in the restaurant. This lottery includes the entire team, from dishwashers to line cooks. A perk like this allows your team to experience the restaurant as a guest and see firsthand the impact their work has on a daily basis.
• Share successes with the entire staff: After a busy season, like a summer tourist season or the holidays, set aside a time to celebrate your wins with the entire staff. A slow Sunday or Monday night is a good choice. Close the restaurant for the evening, bring in some snacks, and show your team that you saw and appreciated their work through the busy times.

In a competitive labor market, building a positive work culture is necessary for a successful restaurant. That same National Restaurant Association study found that the majority of restaurant staff that give notice leave to work at another restaurant. Maintaining a positive work culture to retain employees is just good business; it can cost a business 33% of an employee’s salary to find a replacement.

In recent years staff retention has become a big part of restaurant management. If you are able to keep the staff you have, you will save time and money and create a more positive work environment. Several recent surveys of restaurant workers offer a clear view of what employees want from their restaurant jobs.

• Good wages: Check what other restaurants in your area pay and ensure that your restaurant is on par or a little higher. If your restaurant pays less than others, you’ll have trouble keeping staff.
• Empathetic scheduling: Try to post your schedules two weeks in advance. This gives hourly employees a chance to plan their lives.
• Recognition: Take the time to recognize your team’s efforts and celebrate good services and making it through busy times.
• Time off: After busy seasons or hectic services, schedule time off for your team so they can recharge.

When the restaurant is busy, an effective restaurant manager:

• Is present in the dining room: Make it a priority to interact with every guest that is in the restaurant or “touch tables.” A good table touch is short and polite and opens the door for guests to speak up about their experience without being intrusive.
• Is available to the staff: Restaurant management requires a willingness to help where needed. If the kitchen is busy with orders, the restaurant manager may step in to expedite the food. If the bar is getting overwhelmed the manager might pour beer and wine orders so the bartenders are free to focus on cocktails.
• Addresses service errors personally: Research has shown that 17% of US customers will avoid your business after a single bad experience. After several negative experiences, that number jumps to 59%. As restaurant manager, fixing problems in the moment can stop a service mistake from becoming a full-blown bad experience.
• Knows when to comp and void items: To keep your costs in line and keep your inventory accurate, any food or beverage that is prepared should always be a “comp” in your POS. The only items that should be voided are items that were not made.
• Uses comps judiciously (and carefully): The profit margins on liquor are much higher than food products, so it makes sense from a cost perspective to send a complimentary round of cocktails to a group that has had a negative experience. In some states, however, it is illegal to give away alcohol. Be sure to check your local liquor laws before you comp alcohol.

After the dining room is empty, there are still ways to tie up loose ends with customer service. Mistakes and miscommunications will happen in every shift. It is important for a restaurant manager to take the time to learn from them and adjust the operation in response. The best way to do this is by taking the time at the end of every shift to “button up” the operation.

After the guests have left the restaurant, a restaurant manager should:

• Complete daily shift log: A detailed report at the moment will be most helpful for reviewing during the manager’s meetings. Consistent logging will help you see trends, which will allow you to better serve your customers’ and staff’s needs.
• Check social media accounts: The number of consumers who say they prefer social media messaging for customer service grew by 110% between 2020 and 2021. Take the time to check your restaurant social media channels, and respond thoughtfully.
• Coach staff: Check in with all staff members that were involved in negative customer experiences. Provide training and coaching to help them improve.
• Check sidework completion: Many restaurant managers perform the same walk-through at the end of their shift as they did at the beginning. A strong close helps ensure that your opening staff members the following day will be available to assist customers, rather than being tied up completing stocking and cleaning tasks that could have been done the night before.

Most every task in restaurant management can be tied to customer service. Keeping the space clean and safe and your staff trained and motivated and ensuring that all of your operational systems are in top working order and that you have enough inventory on hand to meet guest expectations are all part of creating an excellent guest experience.

A restaurant manager hires, trains, and supervises service staff, manages food and labor costs, grows restaurant sales, and handles guest issues. Depending on the restaurant type, the manager may also be responsible for developing a beverage program or managing catering and special event sales.

Good restaurant managers are constantly learning. They stay abreast of industry trends in food, beverage, technology, and people management. Good restaurant managers know every aspect of the restaurant operation and can perform every job in the restaurant. The best restaurant managers step in to assist the business where needed, whether that is designing a marketing campaign, attending a meeting of a neighborhood business committee, or washing dishes in the restaurant.

Restaurant management is not complicated, but it can be very stressful. Restaurant managers must stay calm under immense pressure and tight deadlines while making dozens of daily decisions that have an enormous impact on the business. Before pursuing a restaurant management career, you should also consider the potential strain that regularly working nights, weekends, and holidays may put on your personal life. If your friends and loved ones work traditional Monday through Friday daytime hours, you’ll rarely see them.

If you can handle those stressors, restaurant management won’t feel difficult. There is a pattern to most services; business lulls and rushes tend to happen at similar times and the system of ordering, selling, and counting stock is straightforward, as is the process of hiring and training new employees.

After time, you’ll develop a strong network of other hospitality workers (and you’ll rarely pay full price at another restaurant when you dine out). You’ll also find it easy to intensely focus on the work in front of you and “get in the zone” during a service. I have always found those moments to be incredibly rewarding, which is why I managed restaurants for more than a decade.

A hospitality management degree is useful if you want to rise through the management ranks in a high-profile hotel or restaurant group. Institutions from community technical colleges up to the Culinary Institute of America and the Cornell School of Hospitality Management offer excellent programs. But management certifications are not necessary to manage a restaurant. You can learn how to manage a restaurant equally well by working your way up from an entry-level restaurant position like a server, bartender, host, or busser.

If you begin your restaurant management career with a management degree, it’s a good idea to spend at least a month actually working each position in the restaurant. You’ll see the challenges your staff faces in the course of a service, identify ways different roles can help one another, and earn a lot of respect in the process. I have always found that restaurant staff respect managers who have done the work themselves more readily than managers who have a degree but no real-world experience.