Analyze Staffing Levels

Lowering Labour Costs

Managing employees’ performance and controlling labour costs continue to demand a significant portion of management’s attention. Fueled by increasing minimum wages, labour scarcity, and hyper competition for talented staff, operators are finding it increasingly difficult to attract and retain strong employees. Paying wage premiums as well as lower team performance and productivity have resulted in higher payroll costs, cuts to staffing levels, and inferior customer service.

In any retail operation, the largest overhead cost is usually for staffing. Not only is payroll a regularly occurring expenditure, along with it are the additional associated costs of taxes, benefits, vacation, sick days, etc. Managers stressed by dropping margins might consider reducing payroll to improve cash flow, but this may be counter-productive. Less is not always better, as lower staffing levels can reduce effectiveness while increasing other risks such as loss due to theft. Over time, inferior service will result in sales decreases, prompting the need for additional labour reductions. This negative cycle will prove difficult to break.

Setting Minimum Staffing Levels

To avoid this paralyzing downward spiral, it is critical for operators to ensure that they are achieving the minimum effective labour cost for their business. This target will vary for each operation based on a variety of factors. A store could start by planning to schedule one salesperson per shift based on a predetermined amount of sales, and add a second person only when forecasted sales are going to exceed that amount. That amount will vary in each store, depending on the value of your average sale.

However, loss prevention must also be considered. Although a small store may get away with one person being cashier and salesperson, that situation creates issues with theft since one individual would have difficulty watching the exit if they are assisting a customer with product selection.

The desired customer service level must also be considered, as minimum staffing levels make it difficult for staff to spend quality time giving advice, building relationships, and promoting customer loyalty. Industry averages provide a good starting point, but schedulers must consider the unique characteristics, service processes and objectives for their operation when determining minimum staffing levels. Sometimes, lower labour cost is not better.

Contingency Staffing

Significant amounts of money are often wasted with staff working well below capacity.

Scheduling managers should avoid contingency staffing. Often, businesses schedule employees at certain levels “just in case”. Some of the examples include “just in case the store gets an early rush”, or “just in case the cashier can’t handle the long line-up”. Managers must track business volumes and schedule at levels that reflect what they reasonably expect, not what might happen. Staff and managers can always be stretched to get through unexpected busy periods, but significant amounts of money are often wasted with staff working well below capacity as they wait for business that might happen.

Start and Stop Times

Adjust your start and stop times. Many operators by convention schedule staff to start on the hour or half hour. Business normally doesn’t follow these time periods, so it is illogical and costly to schedule staff this way. Employees often start their shift at slower times and get gradually busier or wait until every customer has finished or the store closes before they leave. Adjusting start and stop times to reflect ten- or fifteen-minute increments will allow managers to better match the number of staff scheduled throughout the day with actual sales flows. These small efficiencies will add up to large savings over time and will have minimal impacts on service levels.

When extra staff is needed on scheduled delivery days, an employee could be brought in for a few hours to handle the receiving, storing, and stocking of the goods rather than being scheduled for a full shift.

Making Schedule Adjustments

Once schedules have been rationalized and a new labour plan is implemented, management must still be prepared to monitor and make adjustments on the fly based on actual business conditions. This may involve starting an employee early to help with an unexpected rush, calling extra staff during holiday periods or when receiving deliveries, or keeping someone later should business volumes warrant it.

Calculating Variances

Labour variance reports can be used to measure the effectiveness of management’s response to business fluctuations and to facilitate future schedule adjustments. Forecast sales and labour targets, based on the posted schedule, can be calculated for each day of the week. Following each business day, the actual sales and labour expenditure (including full labour costs) can be determined and compared to the targets.

The resulting variances will reveal the effectiveness of management to react to actual business fluctuations that deviate from the norm. If sales were lower than expected, did management take steps to cut staff accordingly? If sales were above forecast, was management able to achieve a less than proportional increase in labour? Not only can this be evaluated for the whole operation, it can also be quantified for each staffing function to help target areas for improvement.

Reducing Turnover

In reality, your staff might be your largest non-product cost, but they are also your biggest asset. It has been estimated that the cost of employee turnover – including hiring, training, and limited productivity – can range from 20-30% of an employee’s salary. Even though you’re trying to lower overall labour costs, ensure you pay your staff fairly and offer good benefits so you can retain good employees.

Maintaining Customer Satisfaction

With staffing set at appropriate levels, not only will labour cost be reduced, but employees will be busy, productive and positive.

Efforts to lower labour costs will be wasted if they result in decreases in staff performance and customer satisfaction. Management must set the context for the new labour model by establishing and maintaining high service standards. Setting the bar high for customer service – and not accepting less – will create a culture that promotes productivity and high performance. With staffing set at appropriate levels, not only will labour cost be reduced, but employees will be busy, productive and positive. These steps will be the foundation for long-term profitability and superior service, and will provide operators with a sustainable competitive advantage.

David Swanston is a Hospitality and Foodservice Consultant and Principal of Focused Industry Training Seminars. He is a faculty member at the University Of Toronto Department Of Management and is an instructor at other major Canadian university business schools. Since 1997 he has helped a wide variety of organizations develop and launch new concepts, turn around troubled operations, and improve sales, profits, controls and efficiency. He welcomes any comments. Contact him directly at 905.331.6115 or