Labour cost in many retail situations is usually the highest or second highest cost of business after the cost of inventory is considered.
Here at Tower Systems we are grateful to serve a diverse community of retail businesses. It is our experience that labour cost sits somewhere between 9% and 11% of retail sales revenue in these business.
What this means is: if your revenue, where revenue is product revenue plus commission from agency lines, is $1 million, your total labour cost should be $110,000 based on the benchmark.
Labour cost needs to include fair market value for owner labour invested in the business.
Too often, we see business owners putting in anywhere between 60 and 80 hours a week with the majority of this time unproductive
A small business cannot afford unproductive management time. Your big business competitors do not have this overhead, nor should you.
This is why we suggest where possible and practical that you have no back office or, if absolutely necessary, a small back office that is not comfortable.
While many go into business to be the boss and not at the front line serving customers, the front line is where the business makes money. It is where you ought have your best people.
Allocate your boss time to fit with the size of the business. In a typical small retail business turning over $2M a year or less, we suggest boss time should be no more than five hours a week. This, of course, depends on what you do with the time. If you do bookkeeping, saving the cost of an external resource, it could be more.
Use your POS software to track and measure sales by time and sales by employee as these can factor into decision opportunities before you.
A more practical way to look at this is issue of labour cost: cutting three hours paid adult time a day, Monday to Friday, will add more than $20,000 a year directly to the bottom line profitability of the business.
If you think this is not possible, look at where you do your boss work. Some of this could be done at the counter or on the shop floor. You could multi-task and thereby cut paid hours. It all depends on whether you want the business to be more profitable.
One mid-size retail business following our advice based on data in our PO)S software cut their labour cost in the business by $50,000. In the same period, revenue was up 6%.
Getting your labour cost under control and within the benchmark starts with your roster.
Tower Systems is grateful to offer advice and suggestions to local small business retailers that goes beyond what is usual for a POS software company.