Control the amount of people on the clock to raise your profit margin.
When your business takes in money, some of that money must go to pay for costs of running your business. Some of these costs, like rent, taxes and utilities, are called non-controllable costs, because they remain about the same every month. Controllable costs, like supplies and labor, are those that you can raise and lower through your management behavior. The amount of profit you see from your business can raise by cutting controllable costs. Labor cost is often the easiest of these to control.
Figure Labor Cost
To begin controlling labor cost, you must first know what your costs are right now. Figure out your gross income for one week. This is all the money that came into your business for the week. Add up all the money you paid to your employees for the same week. Divide the gross income into the amount paid out. You will get a decimal figure. Move the decimal two places to the right to get your labor cost percentage.
What Should My Labor Cost Be?
Every industry is different in terms of acceptable labor costs. Restaurant labor can run from a low of 15 percent in some buffet operations to a high of 25 percent in some fast food places. To find your ideal labor cost, check with your district manager if you are in a multi-store corporation, or compare your business with similar ones in your area of the country.
Lower Labor Cost
Managers have invented countless ways to decrease labor costs and raise profits. Train your employees to do multiple jobs so you don't need as many people working on each shift. Utilize salaried managers in multiple positions to eliminate the need for one or more general workers. Give employees regular unpaid breaks each shift to cut hours every day. Cut your staff to the bare minimum in extremely slow periods and before and after opening and closing the store. Avoid overlapping employees by not allowing an employee to check in until the person she replaces checks out. Generally, creating a team of efficient, well-trained employees will keep labor costs down, as these workers can do their job well without wasting time.
Problems With Cutting Labor too Low
While cutting labor costs to the bone can initially raise the bottom line, it can hurt profits in the long run. Employees who are overworked and don't have enough time to do a good job will often offer poor customer service, cutting the income of your business. Lack of available labor for weekly maintenance can cost down the line in repair bills. Shorthanded staffs are likely to cut corners to try to get the main part of their work done, resulting in wastage and loss of profits. Some overworked employees may be tempted to pilfer and steal from cash registers if they feel they are doing the work of two employees without being paid any more for the job.
