Labor is another area that a business owner can examine to see if they have any unnecessary costs. While the first area that most businesses target to minimize labor costs is often the size of employees’ wages, this is perhaps not the most productive angle to take. This is because competitive wages will help reduce costs that your business will occur because of turnover expenses, and losses in productivity caused by job dissatisfaction.
The real issue in regards to excessive labor costs, is often due to turnover expenses, which include recruitment expenses, training expenses, and low productivity while the new employee is training and becoming acclimatized to the new position. Employee turnover expense has been calculated to be about 16 months salary for the position being filled. For lower level positions like sales, turnover for a part time employee making $12,000 per year will cost the company $18,000 for training, recruitment, and loss of productivity per job that is turned over. If your company has a high turnover rate then this expense can impair your company’s ability to survive.
To combat high turnover rates and save money on turnover expenses, you can take a proactive roll in ensuring that your valued employees stay with your company. This can be done by providing them with a competitive compensation package, by allowing flexible scheduling options, by providing them with sufficient training and career development opportunities, and finally by recognizing achievements and contributions that your employees are making to the company. While some of these practices may cost you money, most of these things can be implemented without any cost. For example providing affirmations of jobs well done are free and they are just as effective in improving job satisfaction as giving a small raise in wages.