How to Reduce Labour Costs Without Complicated Software or Consultants in 2019

(Cover Photo by Sharon McCutcheon on Unsplash) Reducing business costs and increasing profit… It’s the never-ending quest, isn’t it? Let me guess, it’s one of your goals for the new year? (Don’t worry, it’s one of ours too.) If you’re a business owner or manager, taking care of costs is a daily reality. In any given week, you may spend hours trying to look for ways to optimize your spending: “Should I hire more or fewer employees?”, “Should I pay them more/less?”, “Should I schedule fewer employees?”, “Do I need to spend this much on this/that?”, etc. Controlling your labour costs is really important because of what happens when they get out of hand. High labour costs create a domino effect: when you pay more, you make less money; to make up for the lost profit, you need to raise your prices; once you raise your prices, your customers will be less satisfied and buy less, which in turn will lead to less profit. Although trying to reduce labour costs may occupy a large portion of your time every year, the answer to reducing labour costs doesn’t need to be complicated, nor do you need to spend hours looking for a solution. If you think about it, it’s actually quite simple. Let’s see if we can think through this one together. What are your labour costs?

Variable

Fixed

Wage (hourly)

Salary*

Bonuses, commissions

Payroll taxes and insurance

 

Employee benefits
Now, looking at these costs, you might be wondering: “Well Sam, that’s nice and all, but how does that help me? What can I do with this?” The first step would be to identify what costs are under your power to control. Generally speaking, you can’t control what’s in the ‘Fixed’ category, while you can control what’s in the ‘Variable’ category, wage being the most important element in the list. In fact, wage (i.e. how much money you spend on your employees) is the most significant source of costs you can control. So, what affects the wage amount?

·        How many employees you have

·        How many hours they work per week (related: overtime fees)

·        Their pay rate (of course, minimum wage cannot be changed)

·        How productive your employees are

So, how can you positively impact each one of these elements? There are at least 5 things you can do: 1) Make use of available technology The right technology can work wonders for your business in terms of reducing labour costs: reducing costs due to human error, increasing efficiency and productivity, ensuring data storage, increasing data security, etc. The right technology will also help you streamline your business’ processes, saving time and money on tedious administrative tasks that can easily be automated. 2) Optimize your scheduling A big part of labour costs is knowing who to schedule, when and for how long. When mistakes are made relating to any of these 3 factors (e.g. too many employees scheduled, employees scheduled at the wrong time, employees scheduled for too long), labour costs can quickly skyrocket out of control. Think about it, how often does it happen that you over-schedule your employees, forcing you to pay ridiculous overtime fees? In any case, as a business owner/manager you need to know who to schedule, when and for how long. How do you determine this? To make the task much easier, you can make use of a workforce management tool that incorporates your business’ data into your scheduling. That means taking your business’ labour costs, sales information and customer traffic data (to name a few) into account when scheduling. Armed with this information, such a tool can suggest to you who to schedule, when and for how long. For example, if you’re looking to schedule employees for a busy holiday, you can consult last year’s recorded information and see what times of the day were the most/least busy, what your sales volume was, what your labour costs were, etc. With the information, you can then make schedules with the right number of employees scheduled at the right times and for the right duration. 3) Hire the right people When it comes to staff, it’s all about quality over quantity. When you hire the right person, you are benefiting yourself and the employee you hired. You benefit yourself because on average, employees who are fit for their position tend to be more productive, stay longer, and are happier, while the employee will benefit because they will be in an environment they enjoy, working on tasks they enjoy while using skills suited to the position. 4) Train adequately How do you guarantee that the candidates you hire will perform as expected, that they will be productive? Train them well! Good training is an investment in the future of your business. Encourage your employees to seek development, provide them with training-related incentives, and reward them for seeking personal advancement. When you invest in your employees, they’ll want to invest in you! 5) Take care of your employees We’ve talked at length about employee engagement and how it’s vital to the success of your business. Please, don’t minimize or downplay its importance. Employees that have their needs met stay longer, are happier, and perform better.
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