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Direct labor costs soar: Is your business prepared?

Dave Lunn TellermateIt’s not just California that’s feeling the fallout from the recent minimum wage increase. Companies across the US are already preparing for significant wage hikes, as other regions follow suit… From cutting jobs to self-service technology, businesses are already looking for ways to offset labor costs due to the inevitable wage spikes; leaving you with the question, how can your business prepare?

Earlier this year, the minimum wage for the majority of workers in California hit $10.00 an hour…a welcome move for employees who have seen little to no movement in wages since the recession. However, what was seen as a positive step for employees was quickly overshadowed by the news that many businesses were planning to offset these higher labor costs by cutting jobs. A former McDonalds CEO predicted that raising the minimum wage to $15 per hour “will cost people entry-level jobs“, and just last week, Wendy’s announced that it would be introducing self-service ordering kiosks across its 6,000 stores, potentially cutting thousands of jobs.

It is not just fast-food chains that are feeling the strain. The wall street journal reported in its appropriately titled, “Wages up, profits down” article that “U.S. businesses are facing a problem that many have not thought about in years – rising wages.”

Increasing direct labor costsWhile we’ve been seeing improvements in the job market for a while now, it is the first time since the financial crisis that employees are asking for, and even expecting higher wages. However, with falling customer numbers, higher overheads, and increased competition, many retailers are already struggling to maintain profit margins. Higher labor costs could prove to be one challenge too many for brick and mortar retailers.

Strategists from Goldman Sachs estimate that with direct labor costs rising 3% a year “each extra percentage point of wage increase will cut earnings of companies in the S&P 500 by 0.7%”. Restaurants, retailers, and grocers alike must all find innovative ways to generate savings in order to protect their profits, and driving operational efficiencies is at the top of the list.

What it means for your business

With many businesses already running lean from the recession, scaling back your workforce may not even be possible, much less advisable. Plus, with retailers already struggling to bring customers through the door, decreasing the level of customer service in stores will only make things worse. Cutting staff in retail locations can be detrimental to the customer experience.

How can your business prepare?

Make sure you’re driving operational efficiencies. Manual processes eat up labor time. Automating these will make your business more efficient, and will allow you to reduce the labor costs associated with time-wasting tasks. So, how can you do this without negatively impacting customer service?

The answer is simple. Look at the tasks that are taking your staff away from your customers. Look at what’s keeping your managers in the back office, instead of on the shop floor. Chances are, a good chunk of this is likely to be cash management.

Consider automating your cash management then to reduce the labor costs associated with it. Are your employees wasting valuable minutes every single shift, verifying every drawer, setting start of day banks, validating the safes or creating multiple deposits?

If you have not already invested in a cash management solution, now is the time to prepare. Invest in intelligent cash management solutions that will enable your employees to automate manual tasks such as cash counters, intelligent cash drawers, smart safes or Cash Office software. Unlike self-service checkouts, these solutions will enable you to cut the labor costs associated with manual tasks, but will not negatively impact customer experience. Instead these solutions free up your employees to spend more time on the things that really matter – your customers.

Learn how to improve operational efficiency and reduce the labor costs associated with manual cash management tasks – read the Insider’s guide to counting cash by weight.

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