Restaurant Labor Costs: What Percent Should Labor Costs Be?

What about the costs associated that aren’t listed in the FDD? You will need to account for startup costs, forecasts and ongoing expenses.

Whether you are an entrepreneur pondering your first, fifth or fifteenth small business venture, many of the considerations remain the same. Naturally, you will first need to decide what kind of business to open. Are you interested in a retail or a service-based business? Do you see yourself in a childcare setting or does running a fast-casual restaurant sound more appealing? Regardless of what you decide, there are a variety of factors to contemplate before opening your doors, not the least of which are the costs associated with opening and sustaining a successful business.

Choosing a Fast-Casual Restaurant Franchise

Let’s assume you have done your research and decided to go with a burger franchise in the fast-casual space. You chose a Wayback Burgers franchise because of the appeal of the business model and menu, as well as the support that the corporate leadership team provides. Understanding the recurring or occasional fees paid to the franchisor and the initial investment was simple once you reviewed Items 6 and 7 in the Franchise Disclosure Document (FDD). But what about the other costs associated with running a business that aren’t listed in the FDD?

Getting Started and Building a Business Plan

When starting a business, you will need to account for startup costs, forecasted revenue and ongoing expenses. Having a reliable estimate of what your startup costs will look like is one of the benefits of investing in a franchise. Some franchises may also include a revenue projection or Financial Performance Representation (FPR) in the Item 19 of their FDD, but they are not legally required to do so and many franchises choose not to for a variety of reasons. However, even if the brand you are evaluating does offer an FPR, in order to build a business plan that is as accurate as possible you will still need to do further research by speaking with existing franchisees about their revenue, costs and ROI, and on your own (there are a multitude of free online resources to help get you started).

The Cost of Doing Business

Business expenses can be grouped into two major categories – non-controllable expenses (such as rent and utilities) and controllable expenses. It is no different in the restaurant or food service industry. Non-controllable expenses are important, but they are primarily fixed costs and don’t vary significantly month by month. Controllable expenses, also known as prime costs, include the cost of goods (food and beverage) and the cost of labor, and are critical to the success of your business. With a franchise, such as Wayback Burgers, you can expect a standard inventory list that includes required and/or recommended items. The franchise brand’s support team will also provide you with suggested labor costs, but these can vary considerably.

Labor and Payroll

Labor costs can be broken down into three groups – Management, Kitchen and Front of House. You need to have the right balance between these three to make sure you are not spending too much on labor, but always have enough staff in the restaurant to keep guests happy. Although these percentages vary depending on several factors, typically labor costs should fall between 22-27% of your restaurant’s gross revenue. Many restaurant owners evaluate profit margin based on total prime costs since lower food and beverage costs might allow you to have higher labor costs and vice versa. While there is no true consensus, prime costs should fall between 60 and 66% of revenue.

If you find that your operational profits are lower than projected, you may need to break down costs and analyze where changes can be made. Fortunately, because you chose to invest in a Wayback Burgers franchise, you have a team of people to guide you on best practices for keeping those prime costs in check.

Wayback Burgers offers qualified candidates the opportunity to open and operate a business in the highly-sought-after fast casual sector with a small footprint and a big upside. Currently operating in 30 states and seven countries, the Connecticut-based burger franchise increased its system size by 14 percent in 2018, reaching 156 locations, and is projecting similar growth for 2019. Wayback offers initial training and ongoing support for all its franchisees and works diligently on finding innovative ways to offer franchisees the opportunity to increase revenue while adding value to the customer experience. For more information on how to get started visit

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