One of the largest expenses in retail or business is labor costs. These can add up quickly, often leading to increasing costs over time. Looking for ways to reduce labor costs can help reduce any added strain on your business’s bottom line.
Labor costs, which should only be around 20-35% of a company’s sales, can easily increase to 50-60% without proper management. Strategies for how to minimize the labor cost of your business can happen in many ways. Read on to learn how to cut the cost of labor for your business and maximize your bottom line and productivity.
- Managing Labor Costs
- Key Drivers
- Industry Challenges
- Labor Cost Strategies
- Reduce Your Retail Labor Costs
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The Importance of Managing Labor Costs
Working to increase profit margins can help any business grow, expand, and succeed. The cost of labor, while one of the most vital parts of the business, is still important to keep track of and minimize when possible.
The benefits of finding ways to reduce the costs of labor can aid your business in many other ways. A cost reduction strategy is also vital for helping your business:
- Increase investment opportunities
- Utilize the budget for upgrades in technology or other equipment
- Offer employment perks
- Maintain financial stability
- Hire more staff, if necessary
- Reduce turnover
If there aren’t cost-cutting measures in place, you may end up spending more than you budgeted for on labor. This can quickly add up due to overtime and other factors.
Key Drivers of Retail Labor Costs
There may be concern that direct vs. indirect labor costs impact retail expenditures differently. However, both play a key role in understanding labor costs. Direct labor costs refer to the costs that go to your employees who directly produce your company’s goods or services, while indirect costs refer to those which help with the support of this production, such as repairmen.
The average labor cost of both direct and indirect labor can contribute to overall labor costs. However, some other key drivers of the cost of business include:
- Location: Location can directly impact retail labor costs, as the cost of living vs cost of labor in some areas may be variable. In areas with higher costs of living, there tend to be higher wages and retail labor costs as well.
- Supply and Demand: Supply and demand can also play a role. If you have a shortage of workers due to higher demand for products/services, you may have to increase labor costs or invest in overtime or more employees. This is often variable and can change over time.
- Difficulty: The difficulty of tasks can also impact cost-efficient labor. For higher-difficulty tasks, retail businesses will have to provide higher labor costs.
- Efficiency: Efficiency can impact almost any factor of labor costs. If tasks aren’t done efficiently, more manpower is utilized to complete them, thereby leading to higher retail labor costs.
Retail Industry Challenges
Some challenges in the retail industry can make it difficult to reduce the costs associated with labor. While this will vary from store to store, there are some common similarities to be aware of as you’re looking at your business strategies for cost reduction.
Some retail industry challenges can include:
- Shortage of Workers: The retail industry has dealt with an ever-increasing shortage of workers in recent years. Finding enough help needed without resorting to overtime can be difficult.
- Ways of Shopping: Many stores have shifted to a larger online presence since the pandemic, leading to difficulties in knowing how to allocate labor for online or in-person needs.
- Cost of Living: With the cost of living increasing as well due to the most recent impending recession, many retailers have had to increase their retail costs to help cover the cost of living and other necessities for employees.
- Inflation: Inflation goes hand-in-hand with the cost of living, and it can often prevent cost reductions in certain areas of retail business.
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Strategies to Manage Labor Costs
However, despite these potential challenges that may plague retail businesses, there are various cost reduction strategies that you can still employ to increase cost efficiency. Some strategies, such as managing expenses or implementing a smart safe, can be utilized by almost any retail business.
It’s important to take a look at your business model and overall spending needs before committing to any one cost reduction strategy, however, as every store will have different areas where they can afford to cut back. Some specific strategies you can use to help reduce labor costs include:
Analyze and Optimize Staffing
Analyzing your staffing needs and then optimizing them is a great way to help reduce labor costs for your business. This can be done in multiple ways, and understanding what kind of staffing you need at various times and on what days is often the first place to start.
This can also help you cut down on potential overtime costs by figuring out when is best to schedule people. Cross-training staff can assist with times when staffing may be tight as well.
Assessing Customer Demand and Sales Patterns
Take a look at what times are busiest for your store or business. These are the times that you’ll need the most people on the floor of your retail business to assist customers and keep products fully stocked and produced. You can also utilize the features of a smart safe to analyze when customer demand is highest for certain aspects.
Implement Efficient Scheduling Practices
Employees appreciate regular and predictable schedules, which can also make scheduling easier on your end. Implementing efficient scheduling practices such as reducing schedule changes (unless an emergency) and automating some tasks for a computer (if possible) can assist you in reducing overtime and labor costs.
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Controlling Payroll-Related Costs
Payroll-related costs refer to costs associated with hourly wages, salary, overtime, benefits, taxes, and overhead. These can quickly add up to increase labor costs, especially if you have an outdated payroll system, or if your payroll practices are prone to human error.
There are other ways to control payroll costs for your business as well, including emphasizing time management for employees and ensuring that they clock in and out when they’re supposed to.
Streamline Payroll Processes
Streamlining payroll processes often includes investing in a payroll or timeclock solution that accurately tracks overall hours worked, when employees are clocked out for breaks and also keeps in mind what employees work overtime and for how long.
Another way to do this is to ensure that the employee or manager who keeps track of payroll is fully knowledgeable about the system and how to make changes if necessary.
Embrace Digital Solutions
Various technological solutions can help with reduced costs of labor as well. Inventory tracking and updated computers can help with this. Solutions like CashSimple™ automate the reporting process which can save managers time and money with their payroll.
Digital solutions also take savings a step further with Integrated Cash Logistics assisting entirely with transferring deposits to the bank on your behalf, and then scheduling armored pick ups to take the cash deposits to the bank of your choice. You no longer need to worry about employee safety as they leave the store with large sums of money.
Costs associated with managers and associates travelling to the bank can be used elsewhere, like enhancing the customer experience, training and developing team members, or resolving other issues. Digital Solutions like CashSimple™ through Integrated Cash Logistics delivers real-time data for your business needs.
Ensure Compliance With Labor Laws and Regulations
It’s imperative to also ensure compliance with labor laws and regulations. Don’t schedule employees from opening to closing, and try to not assign them shifts that are less than 10 hours apart. This helps reduce your bottom line for payroll and also keeps your employees happier, too.
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Employee Training and Development
Having under-trained employees can affect your business in a myriad of ways. Mistakes at the register, with the cash or money systems, and with the payroll can all lead to increased costs of labor over time.
Emphasizing that your employees are training correctly and know how to navigate potential errors can drastically reduce labor costs and contribute to the long-term success of your company.
Cross-Training Employees For Multiple Skills
Employees with multiple skills means that you may be able to reduce the number of people scheduled on some days, therefore reducing hours and overall labor costs.
By cross-training employees to know how to work both the register and payroll system, for example, can help you get more flexibility with scheduling.
Implement Standardized Training
Standardized training means that all your employees will not only be trained on the same material for what they need to know but will also help reduce questions or mistakes for common workplace tasks. Ensuring that all employees undergo the same standardized training can lessen labor costs and ensure your customers stay happier as well.
Utilize Alternative Scheduling Methods
Some alternative scheduling methods, such as offering work-from-home benefits, night shift schedules, and part-time workers can help you fill scheduling gaps where you need them without employees going overtime.
For example, if you find that you need an extra person to stock shelves but don’t have time to do it in the morning before you open, look into hiring a night shift stocker so that your store is ready to go in the morning.
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Reduce Your Retail Labor Costs with Integrated Cash Logistics CashSimple™ Solution
If you’re looking for great ways to reduce labor costs and increase your bottom line and productivity, Integrated Cash Solutions can help. Our CashSimple™ technology can help you streamline your cash flow, provide real-time reporting for your needs, and can even eliminate the liability that comes with handling money or coins.
Get in touch with us today if you’re looking for assistance with your retail business. We can help you every step of the way. Schedule a demo with us to see how Integrated Cash Logistics can reduce retail labor costs and allow your business to be as productive as possible.
