As a 16-year-old growing up outside of Boston, my first job was working as a cook at the local McDonald’s. Having no experience, but a great need as a teenager for gas money, McDonalds offered me my first job experience. Even then, McDonalds focused on labor cost controls, food production analysis, waste management and team member training.
Using spreadsheet metrics every day, they measured labor dollar costs and percent against revenue per hour and meal period to help the general manager and shift supervisors, track their labor cost ROI.
Today, with a shrinking labor pool and an average labor cost of $15 per hour or more, all franchise and chain businesses, need to manage their labor better to survive.
But, increasing labor costs’ return on investment, takes a more premeditated approach to manage this ever-increasing expenses.
5 Ways to Increase Labor Cost ROI
1. Better Team Manager Training
Team members need to be educated better on how to manage their variable labor costs as it happens, to maximize operational ROI. It’s not just cut labor…it’s managing labor. Labor management is taught in all franchise and chain management success universities, but in today’s economy, beyond revenue enlargement and inventory control – it’s the primary driver of unit location success. Its labor costs to sales/revenue projections – and balancing these primary costs requires multiple variable analysis of potential sales growth drivers or inhibitors (weather, buyer demand, marketing, sales forecasts, team member productivity, road construction…) to determine the correct labor staffing mix.
2. Data Now, Not Yesterday
Looking at labor-management for yesterday, tomorrow… is too late. Labor is a real-time operating cost driver that needs to be managed in real-time. Growth-directed locations need detailed data that tell stories and that gives guided roadmaps to management, which is needed, now.
3. Better Team Member Productivity
Managing labor costs, many times is interpreted by team leaders as cut labor. But in fact, team member productivity is part of the mathematical equation needed to increase labor costs return on investment. Understanding team member performance and operational skillsets and productivity help increase labor ROI, by matching labor performance with employee capability. Having a skill level/cost level 1 cook employee operate on a busy Friday night during the rush hours, minimizes labor ROI.
4. Better Team Member Coaching
As labor costs go up, proportionally the labor pool quality size or quality does not necessarily increase. To off-set higher labor cost absorption, improved team member performance is needed. To accelerate employee capabilities, in a reduced candidate pool world, requires automated team member coaching that replaces individual bad decision making with organizational key performance Indication (KPI)s instruction and team member action guidance.
5. Better Chain Technology
Today, improved labor ROI costs in the chain and franchise market, cannot be managed only by human instruction. Technology is a force multiplier for chain and franchise location success. Implementing an operational success platform that can measure, report on, manage, coach, and train your team members to greater performance at lower, labor operating costs, in real-time is a requirement.
Technology does not take vacations, miss-read metrics, ask for a raise, or create inventory shrink and yet… it works 24 hours a day. Labor costs are never going to go down. Franchise and chain locations need real-time, operational success technology to off-set the continuing rising costs of labor.
Implementing these five operating approaches will help senior management improve their labor costs at the location and unit level, by leveraging down costs by increasing real-time decision-making performance and improving team member instruction…. when it needs it most.
It’s not just the fully-loaded costs of labor per hour that have to be managed; it’s also the productively per hour that is paid for.