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A Quick Guide to Labor Forecasting

Food and labor are the two largest general cost categories for a typical restaurant. The cost of food and beverage is about one-third of the sales dollar. Salaries and wages account for another third. Keeping those costs at a level that actually yields a profit is a constant challenge. Successful operations combat the issue with […]

Food and labor are the two largest general cost categories for a typical restaurant. The cost of food and beverage is about one-third of the sales dollar. Salaries and wages account for another third.

Keeping those costs at a level that actually yields a profit is a constant challenge. Successful operations combat the issue with a combination of smart budgeting and historical data, which help to keep costs in check and profit margins as big as possible.

And this is where Activity-Based Forecasting, HotSchedules’ labor forecasting module becomes really powerful for restaurants.

At a high level, Activity-Based Forecasting uses data collected through the restaurant’s POS system to generate optimal labor shifts.

When you dig into the tool, you realize it actually does three things really well:

    1. Generating Forecasts
    2. Estimating Sales & Labor
    3. Previewing and Adjusting Forecasting

Generating Forecasts

Schedules aren’t created in a vacuum. Managers have to ask questions about sales and labor like, “How many people should be scheduled for Wednesday’s lunch shift in November?” or “How do we avoid overtime hours?” or “What do we need to do to reduce labor costs and meet our budget goals?”

Activity-Based Forecasting address those questions. The software pulls data from the POS and calculates either Guest Per Labor Hour or Sales Per Labor Hour, depending on your labor management strategy. That information is then used to forecast business up to four weeks in advance.

“HotSchedules allows us to look at the trends from the previous year, or compare our performance in rainy weeks to sunny ones so we know precisely how timing or weather or other factors affect the number of people we need to have on the floor and the times they should be there. Without it, managers would be scrambling and the resulting errors would definitely cost us – big.”

Estimating Sales and Labor

Next, and here’s where it gets cool, your forecast is used to automatically generate a schedule. It’s not just any schedule either. This one contains the exact shifts you predict you’ll need based off your sales and labor estimates.

The schedule is based on optimal labor rules that the restaurant sets up before generating the forecasts. A restaurant’s labor rules might be things like shift duration limits or shift start times.

Stephen Hinkis, long time restaurant industry veteran and former Vice President of Franchise Operations for Newk’s used Activity-Based Forecasting.

“Everyone knows there are many challenges in the restaurant industry, particularly around managing labor and labor costs. We wanted a tool where we could analyze and evaluate restaurant performance in real time, comparing actual hours used compared to plan. We needed to see what was happening without having to call individual managers to determine staffing hours.”

Previewing and Adjusting the Forecast

There are a lot of variables that go into making the perfect schedule. These might be things like the time of year, holidays, annual events, monthly promotions or big sporting events.

With Activity Based Forecasting, you can adjust the forecasts so that the calculations take into account things like major holidays.

“The report most fundamental to me is the Labor Proforma, where we compare hours used vs. the schedule,” said *Odair Ferro, general manager of Newk’s most successful location. *

“I also use the roster report, which shows the hours of each person so you can make adjustments to the schedule at any point in time. And HotSchedules has great tools to help prevent you from generating schedules with overtime built in, as well as tools to alert you if you do. This really helps ensure you are staffing appropriately and effectively.”

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