Find Ways to Reduce Labor Costs

One of dozens of strategies listed and linked to here:
How to Make More Money From Your Business


Perhaps the first thing some people think of when they think about ways to reduce labor costs is getting rid of employees. And to be honest, there are times when that is the right thing to do. But it is only one of the ways that labor costs can be cut. Let's look at some of the others strategies you might try.

To start with, even when you need major reduction in labor, firing employees can backfire if it brings down morale and productivity among the survivors. And you might need to hire back employees at some point. So to the extent possible it is better to use attrition to reduce your labor costs. In some businesses the turnover is quick enough that just not hiring for a few months will reduce their labor force by 20%.

If you want to reduce costs without losing employees, cutting hours is another way to accomplish that. You might start by asking employees if they want fewer hours, I would have happily cut my hours in half at some jobs I have had. I had some money in the bank and would have been happier with the job if it was two days instead of four (I never worked five days per week).

When I was in management at a fast-food restaurant 25 years ago, I took over scheduling, and discovered that we were misallocating employees. There were too many when the business was predictably slow, and not quite enough at other times. By carefully analyzing the daily and hourly sales figures I was able to schedule differently, providing better customer service while saving the company $15,000 in annual labor costs--which meant $15,000 in additional profit. With their 25% profit margin the owners would have had to generate $60,000 in new sales to accomplish the same thing.

When I did this, I gave more hours to any employee who asked, and even gave them the shifts that they wanted. This was an easy policy to implement, because the truth is that very few employees care to think about the shifts they would prefer or are motivated enough to ask for more work. In general then, the best employees were even happier with their jobs, even as I cut labor costs.

More Ways to Reduce Labor Costs

What you can do depends on the nature of your business, but if your sales volume goes up and down quite a bit throughout the year, you might use employees from "temp" agencies to save on labor. The employees may cost more per hour, but you won't have to pay benefits, unemployment or workman's compensation insurance, and you won't face laying off regular employees. You also won't feel the need to give employees hours just to keep them from quitting.

Another way to save on labor is to hire your children. This saves money in a couple ways. First with their own money they can pay for some of their own things that you would have bought for them. Second, if they are under 18 you do not have to pay social security taxes as long as they are your kids.

If there is any way to pay for performance, this can dramatically reduce labor costs. There were employees at that fast-food restaurant where I worked that could replace any other two and do a better job in the same amount of time. When they were working I could schedule lighter and still count on great customer service. I wish I could have hired six more like them at an extra 20% in pay, because we would have saved more than that on labor.

When you can't pay directly for results (like with per-piece factory pay), you can at least try to give more hours and bonuses to the more productive employees, so they stick around and allow for lighter scheduling.

Finally, if you are paying out a lot of overtime, you might reduce labor costs by hiring more employees, or at least scheduling differently so there is less overtime pay.

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Every Way to Make Money | Find Ways to Reduce Labor Costs