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. Here’s how.
What is SPLH?
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.
You might also hear SPLH referred to as sales per employee hour or sales per man hour (SPMH). It’s the same metric, just with a different name.
How to Determine Your SPLH
Determining your sales per labor hour is not as difficult as you might think. To get your SPLH, simply divide your total sales by the number of hours worked by your 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.
You can 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 month to month! If you want to get granular, you can also calculate SPLH per position or department, too. (Check out our guide on using the sales per labor hour formula.)
How to Interpret SPLH Results
So, let’s say you pulled your annual revenue report and figured out your business’s SPLH for the past year. Now what? How do you know whether it’s good or bad? How do you make it 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.
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 a “good” SPLH is for your business, you can adjust your number of staff or number of 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 holidays. 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.
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. These 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 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 to 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.
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.
Benefits of TimeForge for Tracking 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.