Reader Mike writes in to say he’s feeling like his payroll is too high. Mike manages a music store that sells mostly used records (60% markup) and new records (30% mark up).
Mike states that his store’s annual sales last year were about $745K and their payroll costs were about $175K. That means his payroll is a whopping 23% of sales. To put that into perspective, most national retailers have a payroll number that’s about half of Mike’s payroll expenses (12%).
Entrepreneurial and independent retailers do have additional expenses of running their stores (like buying merchandise, shipping/receiving, etc. etc.) that the national guys don’t have. So if you can get your payroll numbers to 15% of sales, you’re doing well.
Using that formula, Mike’s payroll should be at about $112K, saving Mike about $60K annually which all drops to the bottom line.
THE REAL WORLD RETAILING TAKEAWAY
Payroll opportunities exist in three areas: cutting wages, cutting hours and converting full-time employees to part-time.
Mike’s probably like most entrepreneurial retailers that I work with. He’s scheduling too many people for the demands of the business and he’s probably paying them too much. He may also have too many full-time employees and not enough part-time employees, which means he doesn’t have the flexibility to schedule for the demands of the business because everyone “needs” their hours. Here are a few ideas to maximize payroll.
- Scheduling for the business is as easy as tracking sales trends for a couple weeks. Simply track sales every hour and learn when your busiest times are, then schedule to those times. For most retailers, the busiest times are from 12pm-2pm and 4pm-7pm.
- Figure out your average hourly wage. Just add up the hours each employee worked the past couple of pay periods and multiple it by their pay rate. Now take the total payroll dollars for the period for all employees and divide it by the total hourly wages to get your average hourly wage for the store. Make sure to include any salaried employees by taking their annual salary and dividing it by 2,080 hours.
- Now it’s as simple as taking those two pieces of information you learned and applying them to the schedule. If you are looking to have a payroll number that’s 15% of sales, take your sales goal for the week and multiply it by 15%. If your goal is $10,000, that means you have $1,500 in payroll dollars. If your average hourly wage is $15, that means you have 100 hours to spread across your schedule. Now start scheduling people based on the busy times, allowing yourself only 100 hours.
This scheduling system will help maximize payroll. But remember, you’ll need to move people from full-time to part-time if you have too many full-time people to truly maximize payroll. You’ll also need to cut wages if your average hourly wage is above $13 or $14. In this down economy, there are an unbelievable amount of great employees out there who are willing to take whatever wages you’re offering just to be working again.
How are you maximizing payroll?
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