I heard that the cost of labour far outweighs the cost of ingredients in a cafe, is that true?
The short answer: yes.
For every drink and menu item that’s sold, the direct costs of it plus all the other cafe costs have to be covered, adding in a little bit for profit as well. If these ratios are out, your cafe isn’t going to last for very long.
In my discussions with other cafe owners, staff are always the biggest overhead. It’s a delicate balancing act between having enough staff so the cafe runs smoothly, to having too many staff which will eat up all of your profit.
What I’ve learnt from the 4.5 years I’ve been in hospitality is you’re better off having less staff who are really good, rather than lots of mediocre staff. A few reasons why I think this is true:
- With fewer, better staff, you can pay them better and create an environment where they want to stick around, which saves you on having high turnover of staff. Bringing on new staff with training and initiation is an expensive, time-intensive process. If your staff don’t change often, you can avoid this. A customer also once told me that a low turnover of staff is a good indication of a healthy business.
- When the cafe is busy, you very quickly learn whether you have great staff or not so great staff. It’s only when every table is full, dishes are piling up and there’s a dozen dockets for the barista to do, do your really good staff shine.
- Great staff form positive relationships with your regulars which keep them coming back every day. They know what your regulars like and don’t like, and can look after them really well.
I think it’s only fair that labour costs are the highest. Great staff are the key to the success of any cafe, so it makes sense that they are the biggest item on a cafe’s balance sheet.
(In case you’re wondering, rent is the second biggest operating expense we have).