The pizza Chef: January-February 2013
By Diana CoutuFeatures Business and Operations Finance
Planning for profit
In the last issue we discussed the importance of planning ahead for a
new year of business by knowing your true costs, projecting your sales
and filling your schedule accurately.
In the last issue we discussed the importance of planning ahead for a new year of business by knowing your true costs, projecting your sales and filling your schedule accurately. These tasks sound simple enough but the how-to isn’t necessarily obvious. As promised in my last column, here, in further detail, is how we manage our staff.
We look at whether we have enough staff on our schedule to handle the sales we are projecting; keeping in mind that there will be some turnover and occasions when our key staff will want time off. We use a specialized calculation to determine the appropriate number of staff needed for our operation and our projected sales. This is a key tool we use to make sure we don’t overschedule, or conversely, understaff; it’s a delicate balance that must be maintained.
We use two different calculations to help us plan our sales and schedule properly. First, you must figure out how many hours you need to schedule to cover each day. Are you a dinner store and open at 4 p.m., do you do lunch and open at 11 a.m., are you pickup and delivery or do you also have dine-in? You know your store best and only you can figure out how many hours you need to fill your schedule. Perhaps you need 400 scheduled hours in a week. This would equal 10 full-time equivalents, or 10 FTEs, as one full-time employee works 40 hours a week; therefore, 400 hours equals 10 full-time employees. A FTE can also be four part-timers working 10 hours a week or two who work 20 hours. This gives you an idea of how many names you need on your roster to be fully staffed but not overstaffed.
By understanding how many hours you need, you can calculate if you need to hire more staff, or maybe, if you have too many staff on the schedule. Unless you know how many hours you need to fill, then you are just guessing. Since labour is most likely your largest expense, you need to be very careful with your schedule and not overstaff. You must also calculate your labour overhead and add this number to your labour dollar projections. Typically, this is an extra 10 per cent. Here is a breakdown of the overhead: four per cent vacation pay, six per cent for employment insurance and Canada Pension Plan contribution. This means that every dollar you pay your staff is actually $1.10. If you aren’t factoring this into your labour dollars then you will be spending more than your budgeted amount, a practice that can be very expensive and eat up your cash flow.
The second calculation we use is a measure of productivity called sales per labour hour. This is a straightforward calculation and is very easy to figure out. Here is an example: during your supper rush you bring in $1,500 in sales between 5 and 6:00 p.m. and you have 10 people scheduled during that hour, divide your sales $1,500 by the number of staff on during that time to give you a measure of productivity. Fifteen hundred divided by 10 equals $150 in sales per man-hour. This number allows you to determine how many hours you need to schedule to do a certain amount of sales.
By using these two tools you will be able to more effectively fill your schedule with as many staff as needed and as few as possible, and by measuring your productivity you will be better able to determine who your most productive staff are and when your most productive hours are.
These tools can also help you determine what impact any additional labour costs, such as a minimum wage increase, will have on your bottom line. If you know that you need 400 hours to fill and minimum wage just went up 50 cents per hour (400 hours x 50 cents = $200 + 10 per cent overhead = $220) then you know that you need to cut about 20 hours off your schedule (assuming an average wage of $10.25 an hour) and increase productivity just to stay even. Unless you know these two calculations, it’s very difficult to keep labour under control. You can’t plan out your profits if you have no idea how much it will cost to do those sales.
Information is powerful if you use it to your advantage and useless if you don’t. The only way to know if you are on track to making profits is to know where you need to be and correct your course along the way to ensure you reach your goal. If you aren’t planning for your business to profit then who is?
Diana Coutu is a two-time Canadian Pizza magazine chef of the year champion, internationally recognized gourmet pizzaiolo, co-owner of Diana’s Gourmet Pizzeria in Winnipeg, Man., and a board of director for the CRFA. In addition to creating award-winning recipes, Diana is also a consultant to other pizzeria owner/operators in menu development, creating systems to run a pizzeria on autopilot, along with marketing and positioning to help operators grow their business effectively and strategically. She is available for consulting on a limited basis. For more information, contact her at Diana@dianasgourmetpizzeria.ca.
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