Controlling Your Most Controllable Expense

Arguably, employees are the most important asset for a business – also the most expensive. Employee wages represent a major liability on a company’s balance sheet. Any business owner (large or small) worth their salt understands the importance that monitoring and controlling wage spend has on their bottom line. Through work with our clients, we have identified 3 key areas where careful planning and monitoring can help you to control your wage spend – Sales, Hours, and Hourly Rate.


An accurate daily sales forecast is the foundation for any labor plan.  A daily sales forecast can be created by either using software with complex algorithms to automate the heavy lifting for you or a business can choose to manually generate a sales forecast within spreadsheets.
Software does a much better job forecasting sales but still requires some human finesse to account for known anomalies like new competition opening up or business interruptions (road construction in front of store, weather, etc.…).
Sales forecasting in a spreadsheet is affordable and can be effective if done correctly.   A spreadsheet based forecast takes the sales from a comparable week in the previous year(s) and applies the recent year over year sales trend.  For example, if a business generated $50,000 in sales in week 26 2015 and their sales are trending 5% higher in 2016, the business can expect to generate $52,500 in week 26 2016 sales. This is known as a “top down” sales forecast which assumes that all departments and categories in the store will experience an identical 5% sales increase.  This can lead to potential inaccuracies which is why we recommend a “bottom up” sales forecast.  A “bottom up” sales forecast uses the same calculation but is completed for every department or category level rather than a total store.  The department or category sales are then added together to make a total store forecast.  The “Bottom up” approach is much more labor intensive but usually generates a more accurate forecast to assist with labor planning.
Once a sales forecast has been created, you can now calculate how much labor is required to generate those sales.  It’s a simple concept, a business needs to know how much work is required to generate sales prior to scheduling any employees.
Effective and efficient alignment of workload (sales) to workforce (schedule) is best done using software that schedules employees only when work is planned without any bias other than employee scheduling requirements (seniority, availability, skill, etc…).  Without scheduling software, you could  create a nameless schedule that includes only shifts and responsibilities for each shift.  Businesses can create as many of these templates as necessary to account for different sales volumes, seasonality or changing hours of operation.   Once the appropriate nameless schedule is selected, you then need to manually add employee names considering all of their individual requirements.


Business owners typically think of “hours” in terms of the amount of time scheduled to complete a task. In order to better manage this component of wage spend, it is helpful to look at “hours” in a completely different light.
The primary focus of ‘hours’ should be based on the development of consistent and efficient standard operating procedures and engineered time studies to identify the number of hours required to complete a task.
Understanding the number of hours required to operate a business provides valuable information to any business owner. This data can be used to help a company more effectively plan and allocate resources in the following ways:  develop and understand average cost per task, better assess return on investment, establish accurate productivity benchmark measurements, and prepare more accurate wage budgets – one that best reflects actual operating costs.

Hourly Rate

Effective wage control requires a thorough understanding of both short and long term hourly rate trends, that is, understanding what is needed to accomplish a task today and understanding how changes in procedure, technology, employee skillset will influence the amount of time required in the future.  Hourly rates cannot be easily adjusted from week to week and require strategic planning to be managed efficiently. Consider the following methods to control hourly rates:

  • Include labor trends in financial and operational reports to increase awareness of the cost per employee hour worked
  • Reduce overtime with proper planning; including recruiting and training
  • Account for annual rate increases and legislated minimum wage increases in all corporate budgeting
  • Monitor task completion and pay employees accurately for the work they do – You would be surprised how many employees receive premium pay for a task that they did not complete
  • Develop the skillsets of your employees internally and develop internal programs and incentives that facilitate on-the-job learning (rotational programs, internal learning sessions, etc.) in order to generate an increase productivity ahead of an increase in salary
  • Analyze the impact of minimum wage increases in the markets in which you serve

We have outlined concepts to control labor costs and how to do so using traditional methods in spreadsheets.  Although spreadsheets are very affordable, businesses should recognize that labor planning software eliminates manual calculations and guess work.  Since labor costs are one of its highest expenses, we recommend the use of enterprise software to simplify this part of your business to control costs, gain competitive advantage and improve employee satisfaction.
For more information about controlling your labor expenses, you can contact Sal Salamoni

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