When scheduling for a retail business, it’s important to be precise. One of the key metrics that businesses use is sales per labor hour (SPLH), which measures the dollar value of sales for each labor hour. Understanding this metric can ultimately help ensure you have just the right level of staffing for your business. Below, we outline the sales per labor hour formula and how to use it.
What is the Sales Per Labor Hour Formula?
As we mentioned in a previous article, SPLH is calculated by dividing your total sales by your total labor hours for a given period. The formula for this is:
Total sales revenue / Total labor hours = Sales per labor hour
What this means is that you can actually calculate sales per labor hour in several different ways, depending on what you’re interested in. You can calculate your hourly, daily, weekly, monthly, or even yearly SPLH. Each of these numbers will give you a snapshot of how efficiently your business is staffed during that time frame. The important thing to remember is that the given period of time used for the top half of the equation needs to be the same as the bottom. Meaning, if you look up your sales for a specific day, you don’t want to divide it by the labor hours for a different day. That wouldn’t give you an accurate picture of how efficient your business was on either day.
Let’s look at some examples of calculating sales per labor hour.
Sales Per Labor Hour Formula Examples
Let’s say we run a small coffee shop and our 2 scheduled baristas sell $300 worth of coffee from 8AM to 9AM. Our calculation for that hour will look like this:
$300 in sales / 2 labor hours = $150 SPLH
Remember, the bottom number is total labor hours worked, not the number of employees. But because we’re only looking at an hour and have two employees, it works out to 2 labor hours worked.
Now, let’s consider our sales per labor hour for the entire day. Let’s say we scheduled 3 staff with 8-hour shifts each, for a total of 24 labor hours. Our total sales for the day was $2,240. This time, our sales per labor hour formula filled in will look like this:
$2,240 in sales / 24 labor hours = $93 SPLH
As you can see, our SPLH during the morning coffee rush was a good deal higher than the day’s average. We were making more money per labor hour at that time. Later, sales slowed down to normal levels, resulting in a lower average for the day. This is completely normal for many types of businesses. Your SPLH will vary from hour to hour, day to day. Therefore, it’s important to consider sales per hour across different time frames. You always want your staffing levels to match how busy your business is. The key is ensuring that you have just enough staff to keep your customers happy but not so many that you waste money on labor you don’t need. When businesses talk about “optimizing” their labor, this is what they mean. Staffing the right people at the right times to make the maximum amount of profit.
Using the Sales Per Labor Hour Formula to Increase Profits
The whole point of calculating your sales per labor hour is to take a snapshot of the productivity and efficiency of your business. Once you have a sense for your daily or weekly SPLH, you can start planning around how to increase that number without impacting customers’ experiences. Increasing your SPLH means increasing the amount of money you make for the amount of money you spend on labor. Or, put another way, it means increasing the profitability of your business. Instead of calculating SPLH, flip the formula to solve for labor hours, instead:
Anticipated sales / SPLH target = Labor hours to schedule
For example, let’s say we wanted to increase our SPLH from $90 to $100. Let’s also say that we anticipate making about $17,500 in sales in a week. We simply divide $17,500 by $100 to get a total of 175 labor hours. That’s the max hours we want to schedule that week in order to hit that $100 SPLH mark. (Roughly 22 eight-hour shifts.) Of course, you’ll want to schedule more of those hours during your peak business times, which is why it’s still important to understand hourly and daily sales trends. By scheduling your labor more efficiently throughout the day, you can maximize your profits.
If you use the sales per labor hour formula regularly and find that your numbers are low for your business, you might have a problem. It may mean that you’ve got a new manager who doesn’t know best scheduling practices. Or, it may mean that you simply have too many staff on hand for the time of day or season.
How to Anticipate Hourly, Daily, and Weekly Sales
So, if you need to anticipate your sales in order better plan out your labor, what’s the secret to getting it right? Seasoned managers will often spend hours each week planning out their schedules using spreadsheet templates. They tend to know when their restaurant or store will be busy, and they try to plan out their resources accordingly. They might use a rolling 6-week sales average to try and anticipate sales.
Technology offers a better way.
Artificial intelligence (AI) and machine learning have come along way in the past decade. With historical sales data, a labor management system with sales forecasting capabilities can predict future sales with much greater accuracy and in much shorter time than managers can accomplish on their own. The system must be integrated with the point of sale, which means it should pull sales data from the POS on a regular basis and use those data to make calculations and predict future sales. If this piques your interest, we suggest reading up on What is sales forecasting? and Types of Sales Forecasting. The bottom line is that technology is by far the best way to predict your future sales, and it’s not as difficult as you’d think. This is because the AI does all the heavy lifting for you.
The Importance of Accurate Sales Per Labor Hour Calculations
The sales per labor hour formula can be a useful measure of how efficiently your business is staffed, but it does require accurate numbers to be effective. The same is true when you’re calculating how many labor hours you need based on your target SPLH. If you’re overly optimistic in your sales predictions, you’ll end up with too many scheduled shifts. If you underestimate your sales, your employees could end up getting slammed during a rush, and customer experiences could suffer. That’s why it’s important to know your actual and projected sales – and why your projections need to be accurate.
If you operate in an area with fair workweek or predictive scheduling laws, you’re likely having an even harder time of keeping your labor aligned with anticipated demand. Laws in fair workweek areas require employers to post their schedules as early as 3 weeks out. These laws also prohibit employers from making last-minute changes to posted schedules. This means that, in order to avoid being “nickeled and dimed” by penalties, it’s even more important to be able to accurately predict your labor needs in advance. That’s why we highly recommend using sales forecasting to predict your labor requirements.
We hope this was helpful to you in better understanding the sales per labor hour formula and its many uses. For more tips and tricks on dealing with secure scheduling laws, check out our post on fair workweek and shift swaps.