Stop Chasing Percentages – They Don’t Pay the Bills
This article was first published in the February 2025 edition of AHA(Vic) Industry Publication ‘Hotel Today’.
The hospitality industry is evolving rapidly. While we grapple with soaring costs and shrinking margins, it’s time to rethink our focus on ‘standard’ industry percentages for labour, food, and beverage costs.
After all, percentages don’t pay bills. Revenue does.
When clients ask me about acceptable labour percentages, my response is simple: forget industry standards. What matters is how much you need to spend to deliver on your customer promise. A venue doing $40,000 weekly revenue with 35% labour costs is actually spending less on wages than one doing $60,000 with 30% labour costs.
Consider measuring productivity instead – revenue per labour hour tells you more about efficiency than percentages ever will. And here’s what many operators miss: every venue has a sweet spot where you can generate higher revenues without increasing labour spend. Find that number and make it your revenue target.
It’s the point where your kitchen and floor staff are working efficiently but not stretched, where your service standards are maintained but your wage costs aren’t climbing proportionally with sales.
The real question is: where should you focus your energy?
Try this exercise: Take a sheet of paper and draw two columns. In the left, list every task you do to manage costs – covering shifts to ‘save labour’, doing jobs yourself because it’s quicker, or endlessly tweaking rosters to save hours. Add up that time.
In the right column, list the hours you spend working ‘on’ the business – understanding your customers, analysing sales data, improving your offering, or finding ways to encourage more visits and higher spend.
This exercise often reveals opportunities to redirect your valuable time. Rather than spending hours scrutinising wages, or working the shifts yourself to save 1-2% on an already tight budget, consider using that time to drive revenue by strengthening your business model.
Understanding Your Customer
Who are the customers spending money in your venue? Understanding your actual customer base, rather than an idealised version, helps focus your efforts more effectively. Your booking data, point of sale system, and customer feedback tell this story – you just need to listen.
Defining Your Value Proposition
What makes customers choose you over competitors? If your answer is “good food and service” – dig deeper. While those things are important, there’s often something more specific that sets successful venues apart. Your value proposition needs to solve a particular customer problem or fulfill a specific need. This drives repeat business and word-of-mouth marketing.
Growing Smart Revenue
Not all revenue is equal. Many venues leave money on the table by holding onto outdated service styles or menu items that no longer connect with their customers. Take a hard look at your offering – are your beverage lists matching current preferences? Does your food menu reflect how people want to eat today? Use your customer data to identify spending patterns and adjust accordingly. Sometimes letting go of traditional service approaches or long-standing menu items opens the door to better revenue opportunities.
Creating Operational Clarity
When you understand your customer and value proposition, operational decisions become clearer. Your staffing levels, menu pricing, and marketing efforts should all support delivering on your customer promise.
Every hospitality business now has access to rich customer data. Using these insights to shape your business model will drive more revenue than endless cost-cutting ever could.
While managing costs will always be important, sustainable growth comes from building revenue. It’s about finding the right balance between efficiency and growth to create a stronger, more resilient business.
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