updated - October 16, 2021 Saturday EDT
With so much recent attention paid towards better wages for workers, many business owners find themselves pressured to pay their employees more money. Some even decided to start offering benefits packages as a way to maintain a motivated workforce.
While this is great for employees, business owners feel the burn in the form of increased expenses and reduced profits. Those running on thin margins are especially worried about their financial futures.
Cutting pay and holding back benefits are no longer viable options for lowering labor costs. However, business owners have several other methods at their disposal. The following are five practical ways for business owners to reduce labor costs at a time when wages are going up:
The best way to lower labor costs is to eliminate the need for workers in the first place. Easier said than done, but the options go beyond robots and artificial intelligence. For instance, smart lockers are a way for retailers to sell merchandise with minimal workforce required. Consumers buy online, the items are placed in the lockers, and the buyers pick up their orders at their convenience. Such a system requires only one employee at a time. In contrast, typical retail environments need several cashiers and other service personnel to fulfill the same sales volume in the same amount of time.
Another effective way to lower labor costs is to merge several different tasks and responsibilities into one position. While overburdening a single employee with too much work is a recipe for disaster, the utilization of software and other technology makes it possible for one person to do a variety of job duties. Business owners must also routinely go over each role within their organization to detect redundant positions. By eliminating these unnecessary roles, companies can dramatically cut back on labor expenses almost overnight.
Sometimes the best way to lower labor costs is to alter the labor itself. For instance, a pizzeria owner might have her employees apply sauce onto the dough with squeeze bottles instead of spoons. Doing so shaves several seconds off the pizza-making process, which, when multiplied by the number of pizzas made in a given day, amounts to hours over the course of years.
Similar to innovation, optimization involves using improved efficiency to lower labor costs. However, instead of inventing new ways of doing things, business owners optimize by harnessing existing technology. For instance, a dry cleaning service switching from manual end-of-day accounting to a digital system optimizes part of their business process. If it's an employee tasked with such a duty, reducing the workload via optimization inevitably leads to reduced labor costs.
The ability to rely on cheaper labor for getting the same results (or better) is one of the most well-known ways for businesses to reduce labor expenses over time. While outsourcing is often considered a dirty word, the reality is businesses have been relying on it for ages. The key is to know which duties and responsibilities can be reliably outsourced and which are best left to traditional employees. Given the inherently globalized design of the internet, many modern jobs can be outsourced digitally, with minimal upfront investment and even fewer risks involved.
The truth is businesses are always going to pay the least amount necessary for quality labor. While fair wages that provide enough income for people to keep up with the cost of living is essential for finding the best talent to fill critical roles, that doesn't mean business owners can't find other ways to lower labor costs. The right combination of technology, thoughtfulness, and entrepreneurial imagination will lead the best and brightest to more cost-effective labor solutions going forward.
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