Hospitality Financial Leadership – Top 10 List for Controlling Labor Costs
By David Lund, The Hotel Financial Coach
Managing labor costs is a never-ending battle in any hotel. No wonder it adds up to on average 50 percent of the total revenue in hotels around the world. To say labor cost is important is an understatement so in this piece, I will highlight the key controls and features to make sure you are on the right track with this all-important aspect of hospitality.
Number 10 – Updated Daily Occupancy Forecast
If the people in the departments inside your hotel do not have an up-to-date and accurate forecast for rooms occupied, arrivals and departures, you are missing an important feature. Even if the report they have is a “day old” you are behind and flying with one eye shut. Always make sure your team leaders have and use the latest forecast and where possible adjust the schedules daily.
Number 9 – Labor Reporting Daily and MTD
The famous economist Mr. Peter Drucker coined the phrase, “You can’t manage what you can’t measure.” Pretty simple and straightforward thinking, aka, we must measure the results if we want to get better. On top of that let’s throw the following – Monson’s Law – “When performance is measured, performance improves. When performance is measured and reported back, the rate of improvement accelerates.” – Thomas S. Monson. So, there you have it. We must include daily and month-to-date reporting on efforts to manage labor cost.
Number 8 – Quarterly Review of All Schedules
There are no new tricks, just people who practice them. An old boss of mine taught me this one. Each quarter we would have a special meeting where each manager had to present their department’s schedules to him and the rest of the leadership team. We never left that room without serious savings. The way he looked at it was simple; labor creep is everywhere and the best way to stop it is “peer review.”
Number 7 – Include It in Your Financials
Include the labor cost and fully report the payroll numbers as well as the statistics in your monthly financial statements, budgets and forecasts. Closely linked to No. 9 this pro practice is so important that I wrote two full articles on how to do this for rooms, and food and beverage.
Number 6 – Budget and Forecast It
To really bring the entire payroll piece into play in your hotel plan your entire financial picture using all the available tools in your annual budgets and monthly forecast in detail. If you leave it out or even part of it, you are not fully embracing the spirit or the importance of fully and effectively managing this beast. Don’t be a sissy and only go halfway. Fully report wages, supplemental and benefits, also be sure to include the stats for EFTEs and productivity. Once you have it all together you will wonder how you ever existed without it.
Number 5 – Use EFTEs
The clue was in No. 6. Using EFTEs in all of your labor reporting including daily, MTD as well as budgets and forecasts, will transform your management culture. I also know what you are thinking if you don’t currently use these tools because they are complicated and too much. Well, that is simply not true. If you can multiply and divide you have what you need to run with EFTEs. Read all about how here. Pro-tip: Get a copy of my EFTE and productivity exercise by sending me an email and requesting it, and then teach your team!
Number 4 – Knowing What You Can Control
Managing labor effectively means we need to understand what we can control and what we cannot. Time and time again I hear people talking about labor cost as a percentage of revenue, please stop this practically useless practice. You don’t control how much most of your employees are paid, the local government or the union does. You also don’t control how many customers come through the door or what they pay, aka, average rates go up and down. But you do control the schedule, so focus on scheduling effectively using productivity measures, not labor dollars divided by revenue.
Number 3 – Embrace Hours Per Room Occupied and Per Customer Cover Served
These two battle cries must be the leading move in any attempt to manage and report labor in your hotel. These stats are constants that do not get impacted by wage movements or increase or decrease in pricing. Cut straight to the chase and measure productivity and stop confusing people with labor cost percentage, it should only be used as an after the fact reflecting number.
Number 2 – Schedule Using Hours Per
The real pros know that managing labor means getting and staying on top from the get-go. That translates into scheduling using the productivity measures in No. 3. Knowing your productivity targets by labor area and scheduling effectively is the only way to fly. Knowing that your goal is to meet or beat the productivity target at month-end or year-end is the game. Playing and winning the game with productivity measures is like baseball, you don’t need to win every inning, it is the accumulated results at the end that count.
Number 1 – Staffing Guides
Make sure every department has a freshly prepared one – at least an annual staffing guide that includes an approved list of fixed/salaried positions as well as a formula for every hourly position. Also, make sure it is used and it is accurate. Test it often. Don’t overlook or take for granted this all-important document. Make sure all of your managers are fluent with their staffing guides and they are used.
The hotel business and being effective with labor productivity is a game of inches that add up to major dollars at the end of month and year. Take each one to task and realize it is a never-ending exercise that you use to your advantage.