5 Ways to Optimize Your Labor Costs

5 Ways to Optimize Your Labor Costs
Understanding and managing labor costs is an essential part of managing profits and losses.
by Eric Rosenberg Dec 01, 2022 — 3 min read
5 Ways to Optimize Your Labor Costs

This article is for educational purposes and does not constitute legal, financial, or tax advice. For specific advice applicable to your business, please contact a professional.

Labor is often one of the highest costs for a business. Understanding and managing those costs is an essential part of managing profits and losses. With clear information and effective strategies, business owners and managers can make the right decisions for their unique business needs. Here are five ways to optimize your labor costs for businesses of all sizes.

Avoid overstaffing during slow periods

Having too many people on the clock at a time can mean paying people to stand around doing little or nothing. That’s a huge waste of resources and your employees’ time. Setting optimal staffing levels for your business can help you manage your resources and save money.

For example, if you pay an average of $20 per hour and can scale back by 10 hours per week, that’s more than $10,000 per year in savings before calculating taxes and other benefits. Of course, it will not help your business if your cutbacks impact your customers’ experience. Try to avoid changes that risk the level of customer service you provide. It’s possible to reduce staffing in ways that help your business in the long run and maintain positive experiences for both your customers and employees. 

Automate and optimize shift scheduling

No-shows, last-minute cancellations, and reshuffling hours regularly are a waste of everyone’s time and can lead to strains on the business if there’s a shortage of workers when you need all hands on deck.

Square offers an all-in-one software solution to handle schedules, team management, and payroll from your computer or point-of-sale interface. This suite generates schedules automatically, allows team members to request time off, and includes insightful reports, so you know your hours and spending at a glance.

With the best tools for schedule management, you can understand where everyone is working at any given time and how to best schedule your team for top performance and results.

Reduce overtime pay

Just like having too many people working, overtime quickly drives up labor costs. In addition to being expensive, consistently long hours lead to burnout and low morale. The same software that helps you manage your employee schedule can also help you spot overtime issues before the hours start accruing.

Schedule reports provide summaries of hours assigned to each employee. If you’re targeting 40 hours or less, it’s important to know how many hours each employee is scheduled to work. If you spot an issue, it only takes a few clicks of the mouse or taps on the screen to swap the shift to someone else. Avoiding payroll and scheduling errors is a simple way to manage your costs.

Lower employee turnover rates

Losing employees costs time and money. If you’re seeing a high turnover rate and poor employee retention, it’s important to understand the contributing factors. Competitive pay, reasonable hours, constructive relationships, and reliable software and tools can all play a role in attracting and keeping the people you rely on to run your business.

Strong benefits, good working conditions, and a positive company culture all help with employee retention. Because losing productive employees, hiring and vetting new staff members, and new employee onboarding and training are very expensive, losing workers is a costly proposition. You can effectively minimize attrition through good hiring and staffing practices.

Focus on the employee experience

While most businesses focus on the customer experience, savvy managers and owners know that happy employees are loyal employees who are productive and do more to go above and beyond for customers and the company. As you work through issues causing high turnover and iron out scheduling challenges, you should see the employee experience improve.

Adding employee recognition and awards and holiday and team-building events, investing in your workers’ skills and knowledge, and letting employees know you care goes a long way in creating a highly engaged workforce. Embracing tools such as Square Team Communication — which provides instant messaging and knowledge sharing to help your employees work smarter and thrive together — can also help here. 

Did you know many employees are frustrated by outdated payment, inventory, scheduling, sales, website management, and other systems? Learn how Square can help.

Any business can optimize labor costs

Optimizing labor costs isn’t just for Fortune 500 companies. Even small businesses can likely improve labor costs. Imagine if you cut your total labor costs by 5%, 10%, or more. That’s money you can invest back into your business, offer your valued workers as a raise, or pay yourself from increased profits. All stakeholders benefit from a well-managed labor and staffing setup.

Learn more about how businesses scale their teams with Square Shifts here.

Eric Rosenberg
Eric Rosenberg is a financial writer, speaker, and consultant based in Ventura, California.


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