Determining Labour Productivity

Labour is a huge component of our costs associated with running our coffee shop and a major headache for most operators. As I noted in my Page Post on Income Statements , an excellent target for labour cost is 20-25% of gross revenue to be spent on labour. A useful way of calculating labour cost over short periods of time is to calculate the Per Person Hour Revenue for each period by dividing the daily/weekly sales by the number of staff hours recorded for the same time period. A great time to do this is when you are preparing payroll, which for us is every 2 weeks. For example:

Let's say our coffee shop is open from 7am-7pm and revenue for the day is $1000. We have 2 staff working at all times and so our total number of hours booked is 12 hours x 2 staff = 24 hours.
Next we divide $1000/24 = $41.66

This number represents the dollar value each employee sells in a given hour and a number of $40-$50 per hour per staff is excellent.
We can also use the per hour wage to determine whether we are close to our goal of 20-25% for labour. In Ontario our minimum wage is $10.25/hour plus approximately $.50/hr payroll tax and therefore dividing $10.75/$41.66= .258% which is just outside our target. This is not difficult math but provides us with very quick numbers which will assist you in controlling your labour cost. Keep your labour cost below 25% and you have an excellent chance of success.

Knowing your Labour Productivity cold is critical if you are considering adding labour intensive manual brewing (Read Jason Dominy's post about manual brewing) into your coffee bar. Measure and memorize your productivity before and after introducing manual brewing so you can make a business decision about it's value to your business, and not an emotional one based on the latest trends.