Labor management is perhaps one of the most fundamental aspects of running a profitable business. Servicing the customer with too few people on staff and sales will be negatively impacted as customers will shop elsewhere. Staff the business with too many people and the profits of the products are quickly lost due to labor expense.
The key in managing labor is finding the “sweet spot” where customer service is met with the appropriate amount of labor dollars spent. And, when you’re a small independent operator, best practices in labor management can be crucial to your bottom line.
Here are some key items to consider when creating a labor management schedule:
Number of People Required: The first step is to determine how many people are required to be on the staff. Each employee may be paid different wages, have more accommodating available work schedules and be trained in different skill sets. The manager is required to mesh all of these attributes together to determine the optimal work schedule for the week.
Labor Dollars Vs. Budget: The budget may be an annual labor target cost to begin with, but then more finely defined based on seasonality and trends. Once the budget has been established, it will help determine the other key drivers of labor that include wage rates, number of hours used and overtime allotment.
Wage Rate – Manager, Assistant and Crew: Setting guidelines for wage rates for all of your positions are critical. Managing labor has to take into account the skillset and the corresponding wage rate of each staff member in order to optimize labor costs. The balancing act of productivity versus wage rate is the key trigger.
Ceiling Hours: Setting a labor-hours schedule based on anticipated sales volume is the first step in establishing ceiling hours. Every manager should know the corresponding labor hours to be used with the sales volume based on a blended hourly wage.
Overtime: Run your operation too tightly — without contingencies for incremental business — and you may find that you have to invest more in overtime than anticipated. The shrewd operator manages their labor with the right amount of “slack” in the schedule to adjust to customer demands — without having to pay a premium in labor.
Turnover – Manager, Assistant and Crew: Lastly, managing turnover — in particular of highly skilled, cross-trained employees — is paramount for the long-term management of labor. Continual turnover at a business requires that a disproportionate amount of labor is being used to train employees as opposed to labor being used to service customers.
Labor management is a balancing act that consists of managing labor by its triggers. Balancing your labor to service the customer requires a continual monitoring and cross-training of your core staff to ensure that productivity matches the investment.
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John Matthews is the president and CEO of Gray Cat Enterprises, responsible for the management of all consulting activities for the firm, which include retail consulting for multiunit operations; interim executive management; and project management. Prior to founding his own company in 2004, Matthews held senior management positions as president of Jimmy John’s Gourmet Sandwiches and as vice president of marketing, merchandising, facilities, corporate communications, and real estate at Clark Retail Enterprises Inc. Additionally, Matthews worked for nine years in marketing management as the national marketing director of the Little Caesars Pizza Corp.