- Businesses spend around 30% of their total operating costs on labor expenses.
- When employees are laid off, it can lead to higher turnover rates and decreased profits.
- Outsourcing non-core tasks and hiring the right people are two practical ways to cut labor costs without sacrificing quality.
- Technology can automate routine tasks and significantly reduce labor costs.
- Improving employee engagement is another effective way to reduce labor costs.
Businesses, tiny to medium-sized enterprises, always seek ways to cut costs without sacrificing quality, especially in today’s challenging economic climate. One of the most significant expenses for businesses is labor costs, and cutting these costs can make a substantial difference in the bottom line. Here are the most practical ways to cut labor costs and save more.
The average amount of labor cost
Businesses spend around 30% of their total operating costs on labor expenses. This can include wages, payroll taxes, employee benefits, and training costs. It’s important to remember that labor costs are not the same as overhead costs, such as rent or utilities, and should be treated separately when budgeting.
Sadly, when times are tough, businesses often resort to laying off employees to cut costs. This results in a decrease in productivity, morale, and ultimately profits.
How does this affect your business?
When employees are laid off, it can also lead to higher turnover rates. With more employees leaving the business in a short amount of time, costs associated with recruiting and training new staff increase. This can further exacerbate labor costs, resulting in a vicious cycle that is hard to break.
In some cases, the results can even be catastrophic for a business. By laying off employees, companies are losing the benefits of having an experienced and dedicated workforce. This could ultimately lead to decreased customer satisfaction and profits and, eventually, failure.
Practical Ways To Cut Labor Costs
When it comes to cutting labor costs, there are several practical ways of doing so without sacrificing the quality of your product or service.
Outsource non-core tasks
Most businesses use a significant portion of their resources on non-core tasks, which can be expensive. By outsourcing these tasks to third-party contractors or agencies, you can save on labor costs and focus your resources on your core competencies.
For example, manufacturing businesses can consider investing in third-party warehousing and distribution services. Instead of worrying about managing a warehouse and logistics staff, companies can rely on third-party providers to take care of these tasks, saving them time and money.
Hire the right people
Hiring the right people is critical and perhaps the most crucial step in cutting labor costs. When you hire the right people, you’ll have high-performing employees who can do the job quickly.
These employees can save time, money, and effort by doing their job correctly from the beginning. The cost of hiring may be initially higher, but the right employees will be worth the investment in the long run.
Technology can help automate routine tasks and significantly reduce labor costs. For example, companies can use time-tracking software to monitor and reduce labor hours, online payroll platforms to streamline payroll costs and project management software to reduce documentation and paperwork.
Adopting technology can help free up employees’ time, reduce costs, and increase productivity. This is especially important in today’s remote work environment, where technology can keep teams connected and coordinate tasks efficiently.
Improve employee engagement
Engaged employees are highly motivated and productive workers who can lower labor costs by performing their tasks effectively and efficiently. Engaged employees are likelier to remain loyal to their employers, which translates into lower employee turnover and associated costs. Besides, engaged employees tend to collaborate more and work towards common goals, which can also result in cost savings.
Cross-training multiple employees in different tasks can help ensure business continuity even in challenging times. Cross-trained employees can fill in for others, reducing the need for hiring full-time or temporary employees.
This practice can also result in more competent and valuable employees, who are capable of performing their primary tasks and have a deeper understanding of how different aspects of the business work.
To Sum Up
Cutting labor costs is critical for businesses to remain competitive and improve their bottom line. Business owners can reduce labor costs without sacrificing quality or productivity by following the practical tips in this blog post. They can hire people, outsource non-core tasks, use technology, improve employee engagement, and cross-train employees. With the right strategies, companies can stay lean and profitable during tough times.