3 Strategies to Master Your Wage Costs in 2019
Understanding your wage costs from a financial report is a bit like trying to piece back together a fruit smoothie that’s already been blended. Only a fraction of employers ever master their wage costs. Those who do are able to turn what’s viewed as a burden by their competitors into their best competitive advantage.
A well trained and engaged workforce is a terrifyingly sharp weapon to take to your competition.
The secret to it all is actually highly practical in application. It has been proven through decades of research that links highly engaged workforces to increases in topline revenue.
We’ve worked with some of the most successful companies in traditionally low margin industries. Here are three of the most potent strategies you can apply to turn your workforce into your weapon in 2019.
(1) Start measuring the future, rather than just reporting the past
Financial reports are good if you want to see what happened yesterday. But taking control of wage costs is a long-term game. This means managing all expenses that a company bears for the employment of a staff member. This includes everything from gross salaries and benefits to other legal employer contributions.
If you want to improve your future wage cost position, you need to start in advance.
Building a conceptual report of your future wage costs works well because changes to the way you manage your workforce can take a long time to flow through. That’s especially true when it comes to agreed rostered hours, employment types, and hiring strategies, which take time to materialise into long term savings.
You know what Christmas trade was like for 2018, so what will it look like in 2019 with higher wage costs and new employees? What could you change throughout the year in terms of things like the types of employees you hire and their agreed hours? The difference can be significant.
Scenario test your forecasts based on employment type, age, level and test the impact of unforeseen overtime. Software will greatly speed this process up. If you’re only reporting on how well you’ve done, start reporting into the future in 2019. Plan to be successful in the future so you can start moving towards your goals now.
(2) Tie up loose ends with a sharp ‘day of operations’ plan
A well-run shift feels good, it’s like a hot knife through butter. The perfect win-win-win for business, employee, and customer.
For some businesses, this is a random occurrence, but businesses that invest in the success of their workforce replicate this effect on a daily basis. It sounds simple enough: you need the right people in the right place at the right times, and management that leads the charge from the front.
The reality is that planning and execution have many moving parts, which is why the day of operations plan holds key to your long term success.
Staff levels should track your schedule, or day of operations plan, like clockwork. Any observed discrepancies should be viewed in light of demand being increased or decreased versus what was expected.
At Tanda we we’ve quantified the ‘loose ends’ of a shift to be worth at least 1% of total payroll cost, based on clients who moved off manual timesheets. These represent just the small 1 to 5 minute variances here or there to what was planned, so with larger unexpected variances there can be a much larger than 1% difference between your plan and actual costs.
Executing shifts with precision and recording times accurate to the minute is low hanging fruit in 2019. You can do this by setting goals for the time between trading or production end, and the official shift end, to encourage staff to finish diligently. If the original plan results in success, sticking to the plan guarantees it.
(3) Return Managers to the Frontline
If you want to sell more, make more, and ultimately do more in 2019, empower your managers to lead from the front. This is an opportunity that most businesses leave on the table.
Frontline managers are your managers who lead shifts and teams, and they lead more employees than any other level of management. Remember, frontline staff have direct and measurable impacts on top line revenue and quality — they are the doers of any company.
Research shows that the most valuable thing a frontline manager can do is allocate time to lead from the front, yet frontline managers spend more time on administration than on more important things like coaching and training.
In 2019, make the admin the exception. Analyse what keeps managers in their office and automate it, so they can lead the charge from the front. Industrial engineers use the fancy term “task based observation”, but in practice finding out what to automate is as simple as analysing each piece of paper a manager touches and asking, “why?”
Master your Wage Costs
Mastering your wage costs only takes a few key changes to the way you do business. First, investing in the right software will empower you to accurately forecast the next 12 months and beyond based on both reported data and common scenarios. Workforce success platforms like Tanda eliminate the need to guess how different employment and overtime levels affect revenue.
Second, planning ahead and having contingencies ensure that every shift runs well and no resources are wasted. Besides having a sharp “day of operations plan”, preparing for staffing difficulties is possible with features like shift swapping that dramatically reduce no-shows.
Third, ensuring that managers have a connection with both the staff and the customers gives you an edge over the competition. A manager that is not stuck in the back office understands concerns from all ends, and makes better decisions as a result. Help your business grow by implementing these three strategies today!
Curious to know more about a workforce management system that can help your business get better this 2019? Book your FREE demo with Tanda today.
Industry Insights |
Easily get labour budgets under control
Budgeting is essential to keeping on top of out of control costs in any business. At its heart it’s a simple technique – plan out much you’ll spend in each aspect of your business over a specific time period. Then, when that time period – for example, the next month – is finished, look back over it and see how close to the budget you were. Then figure out where you went off budget – maybe you make an unexpected big sale, or maybe overheads were a little higher than expected – and improve on it for next time. The biggest challenges doing a budget well is having data that’s specific enough to be useful. Most accounting systems have different ways of making your data more granular so you can see more specifically where your cost blowouts are. For example, you can use account codes to break up budgeted and actual costs in specific areas of the business. But sometimes you want to dive even deeper than that. A report that tells you that labour costs are 5% over budget isn’t very useful, especially if that’s across several sites or hundreds of staff. The solution… This week we’re introducing a new report that gives line managers and business owners better insights into labour budget variations on their biggest expense – staff. We’ve added roster comparisons across the board in our Real Wage Cost reports, so you can get a breakdown of rostered vs. actual costs for any component of your business. Let’s see some examples… This report shows the variance between roster (budget) and timesheet (actual) costs across an organisation. You can see it broken down by the type of employee as well as the total. And because it’s a Real Wage Cost report, you can also see how superannuation and workcover entitlements as well as leave accruals add up to the real cost of staffing in the business. So we’re a tiny bit over budget in this case. Let’s dive in and figure out why. The Costs By Cost Centre report breaks this down into individual stores. So Merrowport’s a little over budget. We can now dive into the costs by employee report, broken down by shifts in the Merrowport cost centre. And with just a few clicks we’re able to isolate a list of staff who are working over their budgeted hours. Now we can send this list to the Merrowport manager and double check what’s going on. This is just one example of how the Tanda Real Wage Cost reports give you a high level overview of how staff costs are tracking, but also let you dive down into really granular useful data that your managers can use to keep on top of their rosters.
Industry Insights |
How do your wage costs compare to sales?
Ever since man invented the time and attendance system, he has sought to answer the age old question of how changes in staffing levels relate to revenue. Or in its simplest form, how do my staff costs compare to my sales? It’s the sort of question that’s not too hard to answer if you look at your reports once a year. Just look at how much product you sold, and the sum of all your pay runs. But if you want your reporting at a more granular level, it starts to get a bit tricky. That’s why we’ve been hard at work building exactly that. We’re happy to confirm it’s definitely worth it. Once you can answer that, you can answer other questions like which stores are performing best and who are my high performing staff? By linking Tanda to your point of sale system, you can now see exactly what percentage of revenue your staff costs were on a daily, weekly, monthly, or any other basis you like. You can also compare across pay periods. Not sure why wage costs differed substantially one week to another? A change in revenue could give you a clue. So that’s on a company wide level, which is all well and good, but what if we want to dive deeper? If you have multiple departments in Tanda, and multiple point of sale registers, you can get your reporting broken down on a per-POS basis. Use this to figure out which stores, registers, or departments are the most (and least) profitable. Then dive down into timesheet reports and attendance analysis to learn more about who’s performing best within these sites. And as always, you can see a detailed breakdown of which times of day are busiest – based on your POS – when building new rosters. Does linking your time and attendance to your POS sound handy? Sign up for a free trial of Tanda today. If you’re already using Tanda, get in touch and we will help you set these features up on your account! Soon you too will uncover the ultimate answer to the ultimate question. (sorry, not that one).. Huh?
Industry Insights |
How this retailer increased profit by $8.9m from rostering more hours
There has been a lot of speculation on why we are losing retailers so fast. An interesting research piece from the US presented an alternative hypothesis that generalises the issue down to rostering for profit rather than rostering to control costs. For context – If you were given the choice of increasing revenue by 5% or reducing costs by 5% in order to create the most profitable outcome, what would choose? A “back of the hand” calculation would show that reducing costs increases profit more than the equivalent uptick in revenue. Accordingly, most retailers choose option two. This makes sense if you assume the two scenarios are independent of each other, but what if the cost was your employees? This is where the problems arise. For industries like retail, where staff have a direct impact on sales, it’s not as simple of a question as cutting costs to increase profit. In a study led by Professor Marshall Fisher from Wharton, he and his research team constructed a conceptual model from historical data to identify stores within a US-based retail chain that had the highest potential to benefit from increased labour spend. Importantly, the strategy was actually implemented at 168 retail sites over a 26-week period to validate the model, with the retailer electing to implement the strategy further. The result: A near $8.9 million increase in profit of the stores included. The labour cost challenge The challenge in allocating labour budgets lies in the tradeoff between the known immediate payroll cost and the less certain increase in sales that could be achieved with more staff on hand. The researchers point out that retail managers have a tendency to overweigh the decision to reduce the known payroll cost than the less certain increase in sales which could be achieved by allocating additional labour spend. The labour budget death spiral The study highlights the limitation of the most common retail strategy — setting labour budgets as a portion of sales. Fisher points out that this approach creates a circular problem by failing to take into account how store labour spend can positively impact sales, with the worst case leading to a spiraling effect of reduced sales forecasts reducing labour spend which reduces sales further and so on. Quantifying the impact of labour spend on revenue Creating labour budgets that are designed to maximise profit requires retailers to know on a store-by-store basis the correlation between labour-spend and sales. One way to do this is by looking at times when staffing levels deviate from the original schedule. If ten staff were scheduled on a particular day, but on that day only eight turned up, did sales also decrease by the same portion? If not, by how much? If the answer to the above is that sales didn’t decrease at all, the store is likely overstaffed. If there is a measurable impact, the inverse scenario is likely true and the store may be losing sales by being understaffed. This is the same approach used in the study, which found the relationship between random staffing deviations and impacts on sales was statistically significant. Results showed an increase in labour spend pointed to increased sales at varying degrees, depending on known store attributes. Implementing the strategy for profit The study identified stores in a US retail chain which had the highest market potential, making them good candidates for an increased labour spend. The market potential factored in attributes like average basket value and proximity to competitors, which would create scenarios that allow workers to have the highest impact on converting sales. In the study, 168 stores were selected this way, then allocated a 10% increased labour budget over a 26-week period, of which 75% of the increase was actually consumed in practice by the stores. The outcome was a 4.5% increase in revenue at the impacted stores and resulting in a near $8.9 million profit increase. Learning from the strategy The study shows empirically why the common practice of setting labour budgets as a fixed proportion of forecasted revenue is often self-defeating when applied in a retail setting. An opportunity exists to all retailers to leverage this same profit-centric model for defining labour budgets. The data required is available to all retailers however, it may just be a matter of leveraging that information with the right systems. An integrated forecasting strategy that integrates foot traffic, sales, and employee scheduling data is a practical opportunity afforded to retailers of any size to optimise their labour resource allocations. The interesting part is, Fisher’s research is readily available to all retailers who are looking to drift away from the traditional method of fixing labor budget rosters. The next step is to get this method of labour resource allocation battle tested in the Australian markets. Stay tuned. Up next: What is the Contingent Workforce and how can you leverage it in your business?