5 ways to optimize your labor percentage to boost business results.
A little while ago we wrote an article about what labor percentages are and how you can calculate them. It turned out to be a popular post and we decided to dig deeper into this topic. This has led to 5 ways in which you can optimize your labor percentage to boost business results! If you didn’t read the article about what labor percentages areand how you can calculate them, we highly recommend you to read it before diving in.
Berry van Waarden
17. March 2022
In a hurry? Here’s a quick run-down.
- This blog addresses various methods you can use to optimize your labor percentage, enabling you to achieve better results with your business.
- The way you schedule is one of the most important factors to work on if you want to get more control over the labor percentage.
- When considering your labor percentage, do not blind yourself and focus on keeping it as low as possible. In the long run, this will harm the progress of your business.
Do you focus on optimising your labor percentage?
2021 went down in the books with a remarkably big decrease in the number of bankruptcies. An interesting thought given the fact that it hasn’t been a particularly good year because of all the Covid restrictions. The reason a lot of businesses were able to keep their head above water is that public authorities have provided a lot of financial support. But now that the pandemic finally eased and businesses are operating again, it’s time to face the consequences of two though years.
However, difficult times offer great opportunities. It spurs us to think differently and take action. And the perfect way to do that is by focusing on optimising your labor percentage. It requires you to rethink various aspects of your business operations. Starting with more thoughtful scheduling to avoid over-and-understaffing, and empowering your employees to reach their full potential is a solid place to start, but there are many other things you can do. So let's take a closer look at the 5 different ways that you can leverage to optimize your labor percentage and boost results.
1. Calculate your current labor percentage.
Before you can optimize your labor percentage, you have to know where you currently stand. If you are not aware of the current rate you will not be able to measure whether you are improving. So Instead of guesswork, you can make progress measurable by continuously mapping your labor percentage. A little insight: a healthy labor percentage for most businesses in the retail and hospitality industry varies around 15% -30%.
Peer tip:''When calculating your labor percentage, remember to calculate all your revenue. One thing is the revenue you get from customers on location, but the revenue received from takeaways or online orders matter too!
2. Optimise the schedule based on the needs.
The labor rate is directly related to the schedules you make. The more staff and hours, the higher your wage bill. Therefore, it is essential to take this into account when creating schedules. The best way to start is by spending time and attention on predicting the amount of staff you need per day based on the number of customers you are expecting. You can even go one step further by taking the capabilities and salaries of your staff in mind with the aim of increasing productivity and decreasing the wages.
Quick note: be aware of understaffing at all times, as this can go at the cost of revenue and customer satisfaction.
Although these methods are extremely effective, they are also really time-consuming. This might hold you back from achieving the results you’re aiming for. Therefore, it might be interesting to consider using a scheduling tool that can automate this process for you. Here at Workfeed we have built a solution that helps our customers with optimizing their schedules, resulting in an average return investment of 3 times per year.
Reducing your labor percentage is more than ‘optimized scheduling' and having less 'unnecessary' staff on the floor. It is just as important to empower your employees to do their best work. If you support your employees, they will perform better, work more efficiently, be more satisfied, and ultimately generate more income. This has a positive impact on various facets of your business, including the labor percentage.
Let’s take a brief moment to zoom out and process what we have been talking about so far. In order to optimize your work rate properly, it's key to find the right mix between a cost-efficient schedule and the right amount of staff on the floor. Let's have a look at two examples.
Example 1: Wage expenses on the day: DKK 10,000 | Turnover per day: DKK 43,000 (DKK 4,677.50) ÷ (DKK 24,000) x 100 | labor percentage = 23,25%
Example 2: Wage expenses on the day: DKK 10,500 | Turnover per day: DKK 46,000 (DKK 10,000) ÷ (DKK 75,000) x 100 | labor percentage = 22,83%
The example emphasizes that it’s not just about lowering your wage bill. Although it definitely helps, the risk is that it might lead to understaffing. However, the critical part lies in maximizing the amount of revenue by scheduling the ideal amount of staff to serve the customers. In order to realize this, you will have to determine what the ideal employee-to-customer ratio is.
This ratio differs for everyone and depends on your type of business, as well as how much attention you want to devote to the customers. You can determine your own ratio by testing different scenarios and examining the results. It is important to continue doing this regularly to keep it up to date and to be able to take seasonal differences into account.
4. Keep an eye on what is going on the floor.
Along with putting the ideal staff in place, it is important that you keep a close eye on the situation on the floor. Logically, after peak moments or towards closing time, the rush will decrease and less staff will be required to do the work necessary. You will have to determine when it is time to send staff home because they are simply no longer needed. It will take some time to get a hold on this, but what is very useful is to establish a pattern. A simple example could be that there should be one staff member for every 20 guests (your employee-to-customer ratio). This makes it easier to make choices based on the needs you have in your business.
Peer tip:''Keep a close eye on your labor percentage throughout the days in order to locate potential under-and-overstaffing. If the percentage gets really low in peak hours, you might be understaffed - on the other hand, if it gets really high you should consider sending some people home.''
5. Invest in online marketing.
And last but not least, investing in online marketing. Marketing, why does that have to do anything with my labor percentage? Making sure your employees are as well-equipped as possible to serve customers is one thing. To do this, you will also need customers to serve. No doubt you have them, but there is always room for improvement. Bringing more customers to your business simply provides more revenue. And online marketing can help you with that. Anno 2022, the internet is the easiest way to find people, and guess what, 90% of the people search for places to visit online!
There are several ways you can promote your restaurant or store, think about paid advertising, social media, and emailing. And to give you an idea of the possibilities that online marketing offers, let Toni's Pizzaria's results speak for themselves. Toni's Pizzeria managed to increase direct online orders to 70% of total revenue in just three years while having a return on investment of 1,387.96%, all with Google Ads! You can find more insights on how they managed to do this here.
How to get started.
All in all, addressing these points will make a huge contribution to optimizing your labor percentage. However, doing this requires quite the effort and perseverance in order to reap the rewards. Nevertheless, all methods mentioned can make a big difference to your business in the short, and especially in the long term.
The only requirement for successful implementation of these methods is that you invest sufficient time and continue to do so consistently. However, we can relate to the fact that time is perhaps the most precious resource we possess, yet it is often in short supply. We understand that it's not a small thing to ask you to invest your time. So that's why we'd like to present an alternative. Workfeed can help you save a lot of the time that needs to be invested.
This is how: Workfeed makes it possible to create ideal schedules, track hours and handle payroll in 95% less time. Furthermore, the tool has many other powerful features like a chat and the calculation of your labor percentage (automatically even). We'd love to tell you everything you need to know during a free demo.