One of the most frequent questions I hear soon-to-be, and existing, restaurant owners lament, is how much to pay a manager.
“Most” owners asking this question are working owners. After being in the business for awhile, owners start to realize that they can’t be in all places all the time, and still be able to market their business. Working “in” their business keeps them from working “on” their business. Eventually, many of them decide to hire a general manager or assistant managers. Inevitably, the same question always comes up, “What are the industry averages for manager pay?”
Much to the chagrin of the person asking the question, the correct answer to that particular question is, the industry averages are of no use to you in determining what to pay your manager.
Reinforcing and explaining that point is the intent of this article. First, I need to discuss why industry averages are of no use to you in determining manager pay. Then, we’ll discuss what you should be doing to determine what to pay your managers.
Why shouldn’t industry averages be used to determine the pay for my managers?
Every restaurant has a unique financial situation unlike any other restaurant, even if those restaurants are the same concept. Your profit and loss statement looks like no other. The combination of your rent, labor, sales, even cost of goods can be completely different from the same concept in a different location, with different employees, even if you are both McDonalds.
Industry averages are just that, “averages”. They combine figures from small 200 square foot burger huts run by 3 employees, with that of a $1.5 million per year quick service giant with 40 employees. All the numbers from thousands of operations that are nothing like each other are lumped together to create industry averages. While these averages are great to illustrate trends in the industry, and to even compare your own restaurant against and alert you of a potential problem that needs further investigation, they shouldn’t be seen as a guide to use to determine pay. Your operation is different than any other, and more importantly, you are located in a market that is different than the market of most or all of the restaurants used in those averages.
Setting your pay based on industry averages could very well yield a situation where you are drastically overpaying, or underpaying, that employee for that job in your market. You could end up losing money for your decision, or worse, losing a great manager.
What should I do to determine what a manager should make?
Ask yourself these questions:
- What are the businesses paying that I am competing with for employees?
- What can I afford to pay?
- How easy is the job?
Good managers are hard to come by. Landing a great manager is probably going to require you to pay that person more than they can make somewhere else for equal work. To take the first step in figuring out what to pay a manager, you need to figure out what other restaurants in your market are paying. Those are the restaurants your potential manager will be comparing you to. Find similar concepts in the same town and look for their help wanted ads. Call the restaurants themselves and ask to speak to someone about hiring. Pretend you are in the market for a job, that you are an experienced manager, and ask what the potential for earnings are. You won’t always get a straight answer, but if you approach enough restaurants, you’ll get a good idea what everyone else is paying. The key to this being an effective strategy is to only approach businesses in your market. You are competing for employees with the other businesses those employees are likely to go to for a job. Any business too far away for that employee to drive to work to, is completely worthless for information purposes. You aren’t competing with them. You may however, be competing for employees with businesses other than restaurants that are in your market.
The second step to figuring out what to pay a manager is calculating what you can afford to pay. It doesn’t do you any good to go out and get the most incredible manager in the world, and have to pay him/her a $1,000,000 a year if your business only brings in $500,000 per year. You have to be able to afford the manager.
A good “rule of thumb” for management pay, is to keep all combined management salaries (including GMs, assistants, bar managers, chefs, sous chefs, etc.), including their taxes and benefits, under 10% of your gross sales. This is a common figure used in many business models across many industries. As with any rule of thumb, there are exceptions though.
In some instances, a restaurant can have “working managers”. These are managers that fill a position usually filled by hourly employees, in addition to having management duties. When calculating whether your salaries are affordable or not, you should only include the portion of a working manager’s salary dedicated to management duties as part of that “10%”. For example, if you have a shift manager who is also a server, calculate how much you would have to pay another server without management duties to fill the server part of that managers role. Then, subtract what you would pay that server from the manager’s actual pay to calculate how much of the working manager’s pay you should contribute to your “10%” calculation.
Another exception to the rule you might find is in particularly profitable operations with simple business models. These businesses may not have to pay out 10% of their gross sales to attract high quality managers. In their case, they just have to offer higher pay than the businesses they are competing for employees with. Lucky them.
Some restaurants will run into the dilemma of not having a large enough budget for managers when they only use 10% of their gross sales. One option to come up with a more attractive compensation package for these restaurants is to offer a profit sharing bonus structure based on sharing any profit above the minimum profit the restaurant budgets. While the 10% rule of thumb should normally include taxed AND benefits, a profit sharing bonus structure gives you a little flexibility because it is based off potential profit above the budgeted profit. Any part of this “extra profit” is affordable for you to share because it requires the restaurant to be profitable before there is any sharing, and it also requires that you already make the minimum profit you’ve budgeted for. This also incentivizes the employee to earn you more money so they can make more money themself. You can find more detail about this type of bonus structure in a download from our webstore titled “Bonus plan”.
Based on the 10% rule of thumb, you should have a good idea now what you can afford to pay a manager.
The last consideration is the complexity of the job you are hiring a manager for. Not all manager positions are equal. In a restaurant with a working owner who does all the marketing, bookkeeping, hiring and firing, a manager’s job may be fairly simple. They might just be there to watch the floor and help count the registers. You should adjust what you’re offering accordingly, and you should also be very forward about the complexity, or simplicity, of the job when you are interviewing potential managers. You want applicants to be comparing you to other management positions knowing full well what you expect in a manager.
Other factors that make a manager’s job more complex or simple include:
- How organized your business is
- The hours you expect from a manager
- The flexibility needed from the manager
- Whether you are a working owner or “hands off”
- Staff turnover and the resulting demand on the manager
- Whether there are “re-structuring” tasks to be done and whether or not the manager will help
- Whether the manager is also helping market the restaurant
- How much work is required of the manager “outside” the restaurant itself, like catering events or participating in expos and festivals
Just as you would expect yourself, the more you require from a manager, the more you will have to pay that manager to keep them happy. Creating a job description for a manager is a great way of communicating all that you expect from that manager, so you can be up front during the interview process and give them the necessary information to compare a management job with you to a management job with your competitors.
If you do your part by figuring what others in your market are paying managers, what you can afford to pay, and whether your manager position is harder or easier than the ones you are comparing it to, you should be able to come up with a reasonable salary for a manager that keeps them happy and you profitable.
The information was very helpful. I successfully found I was looking for in your blog. I am currently starting a Sports Grill & Bar and I am the GM. I was curious what pay would be reasonable for me based on net profit. Thank you.
I’m glad this article helped. Let me know if there is anything else I can help you with.
Something I like to consider is how much value can the new manager add!
This is a good thing to ask them when talking about pay.