Sales per labor hour, or SPLH for short, is a metric that many businesses use to determine whether their labor expenses are in line with sales revenue.
Often, businesses use metrics like SPLH as a guide when making important labor management decisions.
When calculated correctly, SPLH can help you cut unnecessary costs and maximize profits.
In this post, we will:
- define SPLH and explain what it means
- explain the sales per labor hour formula
- walk you through how to use SPLH with examples
Ready? Let’s get started!
What is SPLH?
Sales per labor hour (SPLH) is a measure of how much money a business makes for every hour spent on work.
In some industries, SPLH is thought of as a productivity metric because it tells you how much money your business makes for the amount of money you spend on your staff.
Other industries prefer to call it a profitability metric, because a higher SPLH means you’re making more profit for the amount of money you spend on labor.
Whether you prefer one label over the other, you can simply think of SPLH as a way of determining whether your labor is well-aligned with your sales.
Are you getting a good return on investment for the amount you’re spending on labor? Are you scheduling your labor efficiently?
That’s what sales per labor hour can tell you.
Is sales per labor hour (SPLH) the same thing as sales per man hour (SPMH)?
Yes. You might also hear SPLH referred to as SPMH. It’s the same metric and is calculated in the same way.
What’s the difference between SPMH and SPLH?
Practically speaking? Nothing. The two terms refer to the same exact measure. The main difference is in how people react to them today.
Sales per labor hour (SPLH) is considered more inclusive, polite, and politically correct because it is not gendered.
If you use either one, most people in the business will know what you’re talking about. However, in the modern business world, many people have transitioned to using sales per labor hour, sales per employee hour, or revenue per employee hour.
Why is the term “labor hour” preferred over “man hour”?
In the US, “labor hour” is becoming more popular than “man hour” because it’s a more inclusive term.
Since employees can be of other genders besides male, sales per labor hour better represents the average employee.
Furthermore, SPLH simply makes more sense.
When inexperienced managers first calculate their sales per man hour, they can get confused, thinking the number of employees they have is somehow relevant. Discussing labor hours instead of man hours makes it more evident that the focus is on the number of overall hours worked.
For example, whether you have two employees working 10 hours each or one employee working 20 hours, your SPLH will be the same.
How to calculate SPLH
Now that we know what SPLH is, it’s time to calculate it!
Determining your sales per labor hour is not as difficult as you might think. All you need to do is use the sales per labor hour formula for a given time period.
What is the sales per labor hour formula?
SPLH is defined as the total sales divided by the number of hours worked by employees during a given period:
Total sales / Labor hours worked = Sales per labor hour (SPLH)
The key here is that you focus on the same period of time for each variable.
It doesn’t work if you divide sales for the month of December by labor hours worked the first week of January. It has to be sales for a given period divided by the labor hours for that same period.
When should I calculate SPLH?
You should calculate your SPLH for any period of time that you deem useful to your business – an hour, a week, a month, or even a whole year.
Different periods of time will tell you how efficient your business is across the workday or from month to month.
If you want to get even more granular, you can calculate SPLH per position or department, too.
Sales per labor hour formula examples
Let’s look at some examples of the SPLH formula in action.
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 the 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 on average as well as 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.
How to interpret SPLH results
So, let’s say you pulled your annual revenue report and figured out your own business’s SPLH for the past year. Now what?
How do you know whether your results are good or bad? How do you make them better?
This is where things get a little fluid.
Because your SPLH will depend on a lot of factors, including what industry you’re in and the type of business you run, there’s no hard and fast answer to this question.
You’ll want to assess how your business does over time to get a good sense for your own unique SPLH.
You can focus on total revenue or just on your company’s sales. The important part is that you’re consistent. Otherwise, you’ll be comparing apples to oranges later.
Tip: Industry reports and annual statistics
As a starting point, industry reports will often have annual statistics that can help you determine whether you’re close to what’s considered “normal.”
If you run a restaurant, you might want to check out the National Restaurant Association’s industry research and reports, for instance.
Once you’ve determined what the low, average, and high SPLH numbers are for your business, you can adjust your staff or scheduled shifts accordingly to increase your average SPLH.
Why average SPLH matters
Why do we specify average SPLH? Well, an important thing to keep in mind is that SPLH will vary by hour, day, month, and even season.
For example, restaurants typically see higher sales per labor hour during the lunch rush, when staff are working their hardest to accommodate a higher volume of customers.
Likewise, retailers tend to see higher sales during the holiday season.
Thus, it’s important to keep your averages in mind, as well as your more fine-grained snapshots.
Whether you’re a retailer or a restauranteur, you always want to have enough staff on hand to meet increases in sales and keep customers happy.
But you don’t want to overstaff, either, as that will negatively impact your SPLH and cause you to waste money.
Using the Sales Per Labor Hour formula to increase profits
Remember: 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, let’s try flipping 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.
On the other hand, 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.
From SPLH to Budgeted SPLH
Once you have a good idea as to how your business performs, you can start setting labor budgets and SPLH targets for your entire business, including individual departments.
SPLH targets are the hours you set aside for labor, as well as the target sales per labor hour you would like to reach for a given period.
Together, these numbers can help guide your management team in their scheduling efforts, so that they schedule the right amount of staff for the maximum amount of profit.
For this calculation, we’re going to do the exact same thing as we did in the previous section: we’ll flip the formula and use sales divided by target SPLH to figure out how many labor hours to budget:
Expected sales / Target SPLH = Labor hours to budget
Instead of actual sales, we use expected sales to determine how many labor hours we’ll need to reach our target SPLH.
For example, if your expected sales revenue for the week is $460,000, and your SPLH target is $125, then you should budget 3,680 labor hours for the week (or less) to stay in line with your goals.
Example: $460,000 / $125 = 3680 labor hours
That’s roughly 525 hours a day, divided across 8 hour shifts to get approximately 65 employees scheduled throughout the day.
Of course, not all of your employees will cost the same amount, work the same job, or even work with the same level of skill. And some hours and days are going to be busier than others. That’s why it’s important to track your SPLH over time and schedule your labor accordingly.
What’s the best way to track SPLH?
The best way to track SPLH is through a cloud-based labor management system that can integrate with your point of sale.
This will bring your sales and labor into the same system and allow management to make informed decisions about how to best schedule employees.
A really good system, like TimeForge, will let you enter in your own targets and set your own goals, too.
Another advantage to using labor management software is the ability to accurately predict sales. If your budgets depend on predicting your sales in advance, then you need a way to make accurate predictions. That’s where sales forecasting comes in.
Sales forecasting is when you use your data from past sales to predict your future sales.
Again, a labor management system integrated with the POS works best. With accurate sales predictions right there in your scheduling platform, you can schedule your labor far more efficiently.
Here’s an example schedule automatically generated in TimeForge based on the location’s target SPLH and budget:
- Next to SPLH Hours, the top number is what’s on the schedule based on what the shift builder just generated. The bottom number is the number of hours that TimeForge thinks the location needs based on SPLH and the distribution of sales.
- Next to Target % Hours, based on the labor target for this store (we used 10.2%), the SPLH formula is estimating that we should be using 96.44 hours this day. The difference between that number, and what is scheduled, is shown below it in red (29.44 in this example). This means we have 29.44 hours we could allocate before we exceed our labor budget for that day.
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.
How fair workweek complicates SPLH budgeting
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.
Benefits of TimeForge for tracking labor metrics
With adequate historical sales data, TimeForge can predict hourly sales with 98.87% accuracy a week out. It can then automatically generate schedules to ensure great labor coverage.
Instead of spending hours each week trying to schedule labor, you could be spending just a few minutes. That’s the power of technology – and why a cloud-based labor management system like TimeForge is by far the best way to track SPLH and schedule your staff.