Labor management and good leadership skills go hand in hand! There is no question that any company that employs people it will become one of their most volatile expense line items they have.


Because people are unpredictable!

Everything from dips in productivity to changes in state and federal employment laws can drive costs up and/or rarely down.

One employee law suit even for something unfounded can cost a company thousands of dollars.

The company that understands this fact also understands how important good leadership skills are to controlling those costs.

Therefore, when you hear a business owner declare that they don't have the time or money to be sending their supervisors to various training classes they are rolling the dice! State and federal laws are changing all the time and in almost all cases in favor of the employee. Not keeping up on the latest changes will certainly handicap your organization, especially if you run a business in a state like California.

Good leadership skills mean that you must continue to sharpen the saw as Stephen Covey would rightly proclaim.

When it comes to managing labor costs it needs to be a balanced approach. Over staffing or under staffing can kill your bottom line. Having an understanding of how each labor dollar influences your bottom line is crucial to good leadership skills. As a very simple example a manager should understand how much in sales are needed each hour to meet your projected goals. All products are priced based on ideal circumstances.

So if you have a product priced with the understanding that your labor cost must not exceed a certain percentage of the gross sale of that product you need to adhere to it. You should routinely try and keep this labor cost percentage on target for every product or service you provide. In food service as an example labor costs should be around 30% maximum. Therefore if your food costs are around 30% and your other expenses don't exceed 30% you should profit around 10%.

Good leadership skills will tell you that you want to always make more profit than you could make simply by putting your money into a secure investment.

The example above is only a very simple example and of course a lot more goes into the formula, but the point is that you must stick to your budget when it comes to labor costs. If someone is sick and you end up having to pay overtime to cover the person’s shift that is potentially wasted money. Therefore, have contingency plans to cover the unexpected. Each business out there will have a little different twist on what they can and can't do to compensate for someone calling out sick. Just one idea is to accrue funds from every labor dollar into an account to pay for those unexpected expenses associated with absenteeism. This way you will always know what your fixed expenses will be.

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