9 tips on how Franchisees can Reduce Labor Costs

Franchisees labor cost reduction strategies, reduce labor costs, EB-3 Visa green card jobs for migrant workers

Labor costs are crucial in franchise businesses’ financial health and success, directly impacting the bottom line.

With the right strategies, franchisees can effectively manage labor expenses to optimize operations, maintain financial stability, and even reinvest savings into growth initiatives.

The Employment Cost Index (ECI) is a metric that tracks the fluctuations in labor costs, without taking into account the changes in employment patterns across various industries and occupations. As of the last quarter of 2023, the ECI stood at 162.1, which indicates a rise of 0.9 percent in labor costs since 2005.[1]

By empowering franchisees with the implementation of methods such as conducting a labor cost analysis, optimizing staffing levels, utilizing labor management software, implementing performance incentives and metrics, investing in employee training and development, monitoring and controlling overtime costs, streamlining processes and workflows, negotiating vendor contracts, and fostering a culture of cost-consciousness, franchise businesses can significantly impact their profitability.

These strategies are not just about cost-cutting but about paving the way for franchisees to identify areas of inefficiency, reduce unnecessary expenses, improve efficiency, and ultimately achieve tremendous success in the competitive franchise industry. Proactive management and continuous labor cost control improvement are key elements for sustained profitability and growth.

1. Conduct a Labor Cost Analysis

A. Reviewing payroll expenses and other labor-related costs:

Conducting a thorough review of payroll and other labor-related costs is essential for franchise businesses to understand where their money is spent.

This analysis examines wages, benefits, taxes, and other labor-related expenses. By reviewing these costs, franchisees can identify potential overspending or inefficiency that must be addressed.

B. Identifying areas of inefficiency or overspending:

When it comes to seeking financial assistance, business franchising is the second most common reason cited by entrepreneurs.

This is primarily due to inventory purchases (24.2%), cash flow requirements for daily operations (22.4%), payroll expenses (21.8%), and debt consolidation/refinancing needs (18.6%).[2] Once payroll expenses and labor-related costs are reviewed, franchisees can pinpoint areas where inefficiencies or overspending may occur.

These could include overstaffing, excessive overtime, or unnecessary labor expenses.

C. Establishing a baseline for labor costs and setting targets for improvement:

Establishing a baseline for labor costs involves creating a reference point against which to measure future performance.

By setting targets for improvement based on this baseline, franchisees can track progress and evaluate the effectiveness of implemented strategies.

These targets are benchmarks for controlling labor costs and driving operational efficiency within the franchise business.

2. Optimize Staffing Levels

A. Analyzing historical sales data to forecast staffing needs:

Analyzing historical sales data allows franchisees to predict future demand and align staffing levels accordingly.

By understanding trends in sales volume, peak times, and seasonal variations, franchisees can optimize staffing levels to meet customer demand without overstaffing or understaffing efficiently.

This analysis helps ensure that the correct number of employees is scheduled at the right times.

It is estimated that franchising has contributed about 221,000 job opportunities this 2024, resulting in a total of 8.9 million employees in the United States.[3]

B. Implementing flexible scheduling to match labor with demand:

Flexible scheduling allows franchisees to adjust staffing levels based on real-time demand fluctuations.

This approach enables businesses to adapt quickly to changing conditions, such as unexpected busy periods or slow days.

By aligning labor with demand through flexible scheduling practices, franchisees can minimize labor costs while maintaining high levels of customer service.

The total output of franchises is expected to witness a growth of 4.1% from $858.5 billion in 2023 to $893.9 billion in 2024.[4]

C. Cross-training employees to cover multiple roles and reduce reliance on overtime:

Cross-training employees on various tasks and responsibilities is a strategic move that enhances workforce flexibility and reduces the need for overtime.

By equipping employees with the skills to perform multiple roles, franchisees can optimize staffing levels, increase operational efficiency, and mitigate the impact of absences or unexpected staffing shortages.

This cross-functional approach fosters a more versatile and cost-effective workforce within the franchise business.

D. Exploring opportunities to hire foreign workers through the EB-3 Visa program involves considering the benefits and steps associated with this option for franchise businesses:

1. Overview of the EB-3 Visa program and its requirements:

The EB-3 Visa program is designed for foreign workers who seek permanent residency in the United States based on employment in a specific job category.

It is important to consult with experts, such as EB3.Work, to understand the eligibility criteria, application process, and requirements of the EB-3 Visa program is essential for franchise businesses interested in hiring foreign workers to address staffing needs.[5]

2. Benefits of hiring foreign workers, such as filling skill gaps and expanding the talent pool:

Hiring foreign workers through the EB-3 Visa program can help franchise businesses access a diverse talent pool and fill skill gaps within the workforce.

Foreign workers bring unique perspectives, experiences, and skills that can contribute to the growth and success of the business, enhancing its overall competitiveness.

3. Steps to navigate the EB-3 Visa process, including labor certification and petition filing:

Navigating the EB-3 Visa process involves undergoing labor certification and filing a petition to sponsor a foreign worker for permanent residency.

Franchise businesses need to follow the prescribed steps, meet all requirements, and adhere to immigration laws and regulations to bring foreign workers onboard through the EB-3 Visa program successfully.

4. Considerations for compliance with immigration laws and regulations:

Compliance with immigration laws and regulations is paramount when hiring foreign workers through the EB-3 Visa program.

Franchise businesses must adhere to all legal requirements, maintain accurate records, and fulfill their obligations as sponsors of foreign employees to avoid potential legal issues or penalties.

5. How hiring foreign workers can contribute to optimizing staffing levels and controlling labor costs:

By hiring foreign workers through the EB-3 Visa program, franchise businesses can optimize staffing levels, address skill shortages, and potentially reduce labor costs.

Foreign workers can bring valuable expertise and capabilities to the workforce, contributing to operational efficiency and overall cost-effectiveness within the franchise business.

On average, 31.1 million foreign-born workers out of the total 167.1 million labor force in the United States were employed in 2023.[6]

3. Utilize Labor Management Software

A. Introduction to labor management software solutions

Labor management software solutions are pivotal in automating and streamlining workforce management processes.

The Workforce Management Software market is expected to grow significantly between 2024 and 2032, with a CAGR of 17.52%. It was valued at USD 9132.74 million in 2021 and is projected to reach USD 24058.19 million by 2027.[7]

These solutions, typically include time and attendance tracking, scheduling, payroll management, and performance analysis, can significantly improve operations by reducing manual errors, cutting administrative work, and increasing productivity.

Moreover, these tools ensure compliance with labor laws and regulations, facilitate fair employee compensation, and provide better employee performance and productivity transparency.

B. Features and benefits of labor scheduling and tracking tools

Labor scheduling and tracking tools are designed to help businesses streamline their workforce management processes.

These tools’ key features include creating employee schedules, tracking time and attendance, and managing shift changes and employee requests.

By automating many tedious and time-consuming tasks associated with employee scheduling and tracking, businesses can free up valuable time and resources that can be better spent on other areas of their operations.

In addition to increased efficiency, labor scheduling and tracking tools can also help to reduce labor costs and improve employee satisfaction.

By ensuring employees are scheduled for the right shifts at the correct times, businesses can minimize the risk of overstaffing, leading to unnecessary labor costs or a poor customer experience.

C. How software can help optimize staffing, reduce labor costs, and improve efficiency

In today’s fast-paced business environment, staffing optimization, labor cost reduction, and operational efficiency are critical success factors.

One way to achieve these goals is by leveraging software solutions to streamline and automate workforce management processes.

These software tools can help managers make more informed decisions about staffing levels, identify cost-saving opportunities, and improve employee productivity.

By analyzing data on employee time and attendance, workload, and performance metrics, these solutions can provide valuable insights that enable organizations to optimize their staffing levels, reduce labor costs, and boost operational efficiency.

Investing in workforce management software can help to stay competitive in today’s dynamic business landscape, whether a small business owner or a large enterprise.

4. Implement Performance Incentives and Metrics

A. Setting performance goals for employees and teams:

This helps align the team’s efforts with the organization’s vision and mission.

When setting performance goals, it’s crucial to make them specific, measurable, attainable, relevant, and time-bound (SMART) it will allow to track progress and make necessary adjustments.

B. Establishing metrics to track productivity and efficiency:

By tracking key performance indicators (KPIs), it can identify areas that require improvement and make data-driven decisions to optimize the team’s output.

Establishing metrics to track productivity and efficiency helps to monitor the team’s progress toward achieving their goals.

Some standard metrics to track productivity and efficiency include sales targets, customer satisfaction ratings, project completion rates, and employee turnover rates.

C. Offering incentives or bonuses for meeting or exceeding targets:

Offering incentives or bonuses for meeting or exceeding targets effectively motivates team to perform at their best.

It encourages employees to work towards their goals and helps retain top performers in the organization.

It has been observed that in the United States, employees are given bonuses that amount to approximately 8% of their annual salary on average.

This implies that most employers provide their workers with an extra payment that is equal to 8% of their yearly income as a bonus.[8]

When designing an incentive program, making it fair, transparent, and aligned with the team’s objectives is crucial.

5. Invest in Employee Training and Development

Investing in employee training and development is crucial for the growth and success of any organization.

This investment not only benefits employees but also the company as a whole. Research Gate reports that leadership training can enhance an employee’s learning capacity by 25% and boost their performance by 20%.[9]

Here are a few ways in which employee training and development can be beneficial for an organization:

A. Providing comprehensive training programs for employees:

Comprehensive training programs help employees to understand their roles and responsibilities better.

They learn about the company’s policies, procedures, and practices, which allows them to perform their jobs effectively and it is through training programs that could help them understand the company’s culture and values.

B. Developing skills that enhance productivity and efficiency:

Training and development programs help employees to acquire new skills that improve their productivity and efficiency.

They learn about the latest technologies, tools, and techniques that help them perform their tasks more efficiently.

This benefits not only the employees but also the company, leading to increased productivity and efficiency.

C. Empowering employees to take on more responsibilities and contribute to cost-saving initiatives:

Training and development programs empower employees to take on more responsibilities and contribute to cost-saving initiatives.

They learn about new processes and procedures that can help reduce costs and increase efficiency, which allows the company to save money and increase profitability.

6. Monitor and Control Overtime Costs

A. Establishing clear policies is essential to controlling overtime costs.

This helps prevent unnecessary expenses and ensures that overtime is only approved when necessary.

Clear policies can include guidelines on when overtime is permitted, how much overtime can be accrued, and how overtime is authorized.

B. Monitoring and approving overtime hours is another way to control overtime costs.

This involves keeping track of employee hours and ensuring that overtime is only approved when necessary.

By monitoring overtime, businesses can identify areas where productivity can be improved, reducing the need for overtime in the first place.

C. Starting from July 1, 2024, the minimum salary threshold for employees who can be required to work 60-70 hours a week without receiving any additional pay will increase to $844 per week.

This means that employees earning less than $844 per week will be entitled to overtime pay for any hours worked beyond 40 hours in a week.

Currently, the threshold stands at $684 per week (equivalent to $35,568 per year for a full-time employee).[10]

Businesses can also explore alternative staffing solutions to reduce reliance on overtime.

This can include hiring part-time or temporary employees, using job-sharing arrangements, or cross-training employees to perform multiple roles.

By diversifying their staffing solutions, businesses can reduce their reliance on overtime and control labor costs.

7. Streamline Processes and Workflows

A. Identifying and eliminating inefficiencies in daily operations:

To streamline processes and workflows, businesses need to identify and eliminate inefficiencies in their daily operations.

This can involve reviewing current processes, identifying bottlenecks, and finding ways to simplify or automate tasks.

B. Automating repetitive tasks to save time and reduce labor costs:

This can involve using software to automate data entry, scheduling, or invoicing tasks.

By automating these tasks, businesses can save time, reduce labor costs, and improve accuracy.

The CompTIA IT Industry Outlook 2024 report reveals that AI integration is gaining momentum in the business world.

Among the surveyed firms, 22% are making aggressive efforts to incorporate AI into their technology products and business workflows.

Another 33% are adopting AI in a limited capacity, while a significant 45% are still in the exploration phase.[11]

This shift towards AI is a clear indication of the growing importance of this technology in the digital age, and it is likely to continue in the years to come.

C. Implementing lean principles to optimize workflows and minimize waste:

To increase productivity, reduce costs, and improve the overall quality of their operations, businesses can take steps to identify and eliminate any wasteful processes that may be hindering their workflow.

This can involve streamlining procedures, cutting unnecessary steps, and minimizing delays and rework.

Organizations can achieve greater efficiency and effectiveness by optimizing their workflows, leading to better outcomes and a more competitive position in the marketplace.

8. Negotiate Vendor Contracts and Leverage Discounts

A. Exploring opportunities for volume discounts with suppliers:

This strategy allows companies to leverage volume discounts to their advantage.

Essentially, the more a business buys from a supplier, the lower the cost per unit becomes. By taking advantage of these discounts, companies can optimize their supply chain management, improve margins, and ultimately boost their bottom line.

This approach benefits businesses requiring a large volume of raw materials or supplies. By negotiating volume discounts, they can reduce costs and increase profitability without sacrificing quality or efficiency.

B. Negotiating favorable terms and pricing for essential supplies and services:

As a business owner, it’s important to constantly look for ways to improve cash flow and reduce expenses.

One effective way to do this is by negotiating for better deals with suppliers or vendors.

Deals could involve extended payment periods, lower prices, or other cost-saving incentives to help businesses save money and improve their financial position.

According to a study by Huthwaite International, 80% of global companies lack negotiation processes, which hinders their ability to earn more.[12]

Negotiation processes can help adjust prices, offer deals, and introduce favorable terms to save money and get better quality products and services.

Negotiating effectively will create a win-win situation for both the owner and the suppliers, which can benefit the company in the long run.

C. Partnering with vendors who offer cost-saving incentives or loyalty programs:

Businesses often offer incentives such as repeat business discounts, rewards for volume purchases or other perks to build strong relationships with their vendors.

These benefits not only help the business save costs but also enable it to improve its overall profitability.

By partnering with reliable and trustworthy vendors, businesses can ensure they receive high-quality goods and services at competitive prices, ultimately contributing to their success.

Furthermore, these partnerships can also lead to increased collaboration and innovation, allowing both parties to benefit from new ideas and business opportunities.

This can include discounts for repeat business, rewards for volume purchases, or other perks.

9. Foster a Culture of Cost-Consciousness

A. Educating employees about the importance of controlling labor costs:

To ensure the smooth functioning of a business, it is important to provide employees with the necessary training on time management and resource allocation.

This will help them prioritize their tasks and best use the available resources.

Additionally, keeping the employees informed about the company’s financial performance is essential because this will enable them to understand how their work impacts the organization’s overall success and motivate them to work toward achieving the company’s goals.

By providing employees with the proper training and information, the company can create a productive and motivated workforce that contributes to the growth and success of the organization.

B. Encouraging employee feedback and suggestions for cost-saving initiatives:

According to research of more than 600 US businesses with 50-500 employees, 63.3% of companies say retaining employees is harder than hiring them.[13]

Employees like to feel valued and be heard, giving the business valuable insights into potential cost-saving initiatives.

By involving employees in this process, companies can boost employee engagement and identify and implement cost-saving measures that may have gone unnoticed.

This approach can be especially effective in reducing waste, improving efficiency, and cutting costs in the long run.

C. Recognizing and rewarding employees who contribute to cost-saving efforts:

When employees feel valued for their efforts to cut costs, they are more likely to take ownership of their work and come up with new and innovative ways to save money for the company.

This can lead to increased productivity, improved morale, and a more positive work culture overall.

Recognition can come in many forms, such as bonuses, promotions, public praise, or even just a simple thank-you note.

Final thoughts

Franchisees labor cost reduction strategies, reduce labor costs, EB-3 Visa green card jobs for migrant workers

Effective management of franchise business is important to achieving sustained profitability and growth.

By conducting a labor cost analysis, optimizing staffing levels, utilizing labor management software, implementing performance incentives and metrics, investing in employee training and development, monitoring and controlling overtime costs, streamlining processes and workflows, negotiating vendor contracts, and fostering a culture of cost-consciousness, franchise businesses can significantly impact their bottom line.

With proactive management and continuous improvement in labor cost control, franchisees can optimize their operations, maintain financial stability, and reinvest savings into growth initiatives, ensuring success in the competitive franchise industry.

References:

[1] Statista. “Employment Cost Index for all employees in the United States from the first quarter of 2013 to the fourth quarter of 2023”. https://www.statista.com/statistics/215652/employment-cost-index-in-the-us-by-quarter/

2 Kiah Treece. “Small Business Loan Statistics And Trends 2024”. https://www.forbes.com/advisor/business-loans/small-business-loan-statistics/

3 Katherine Knight Patterson. International Franchise Association. “New Data Shows Franchising Continues to Exceed Growth Expectations. ”https://www.prnewswire.com/news-releases/new-data-shows-franchising-continues-to-exceed-growth-expectations-302062031.html

4 Id.

5 EB3.Work.https://eb3.work/

6 Greg Iacurci. “Immigration is ‘taking pressure off’ the job market and U.S. economy, expert says”.https://www.cnbc.com/2024/03/02/immigration-taking-pressure-off-the-job-market-us-economy-expert.html

7 ApexAnalytica Labs Ps. “2024 Workforce Management Software Market Trends Research Report to 2032”. https://www.linkedin.com/pulse/2024-workforce-management-software-market-trends-ynzbf/

8 Gitnux. “Statistics About The Average Bonus Percentage”. https://gitnux.org/average-bonus-percentage/

9 Pete Ford. “Important Corporate Training Statistics and Trends”. https://www.edstellar.com/blog/corporate-training-statistics

10 Samantha Sanders. “Explaining the Department of Labor’s new overtime rule that will benefit 4.3 million workers”. https://www.epi.org/blog/explaining-the-department-of-labors-new-overtime-rule-that-will-benefit-4-3-million-workers/

11 Emily Matzelle. “Top Artificial Intelligence Statistics and Facts for 2024”.https://connect.comptia.org/blog/artificial-intelligence-statistics-facts

12 Marijn Overvest. “Negotiation Statistics 2024 — 20 Key Figure”. https://procurementtactics.com/negotiation-statistics/#figures

13 Valène Jouany and Mia Mäkipää. “10 Employee Engagement Statistics You Need to Know in 2024 [INFOGRAPHIC]”. https://haiilo.com/blog/employee-engagement-8-statistics-you-need-to-know/