Seven Strategies to Reduce Cannabis Labor Costs
Labor costs can make or break business profitability in any industry. Cost controls are even more critical when your margin is already challenged by excessive taxes and an inability to write off even the most common business expenses—as any cannabis operator knows all too well.
Reducing labor costs is an excellent way to reduce expenses, maximize profits, and keep more money in your business. Even if you’ve been working hard to reduce operational costs and not moving the needle in the direction you’d like, focusing on labor is where it will make the most difference.
What Drives Labor Costs Up?
There are two types of labor costs:
· Direct costs relate to what you pay people to produce your product, fulfill a business function, or work in the store.
· Indirect costs are those you pay for repair people, contractors, and outsourced services.
You have control over both to a certain extent, but you should not cut labor at the cost of your business. For instance, cutting your staff to bare bones may reduce labor costs efficiently enough, but your business will suffer. If there aren’t enough people to do the work, employees will be forced to do more than they’re capable of, which leads to burnout, and likely, they will eventually leave.
As an employer, you want to ensure you have enough people to do the work that needs to get done. You don’t want to overload employees with too much, but you also want to avoid idle time to ensure every paid hour is productive.
And payroll isn’t just about paid hours. You also have state and federal payroll taxes, insurance, and benefits to cover, which can increase labor costs by 30-40% on top of the base pay.
Other variables include overtime, non-productivity, holidays and time off, and sick days, not to mention the cost of recruitment and new employee training.
If you have high employee turnover, you can expect labor costs to soar. Every time you onboard a new worker, you need to train them, which takes time and effort. Regardless of what position they are hired for, it will take them time to achieve maximum productivity, and there is no guarantee that they will work out.
Today’s article will look at innovative ways to reduce labor costs, many of which you can implement immediately.
Labor Cost Reduction Strategies for Cannabis Operators
If labor costs are getting you down, don’t write up the pink slips just yet! These tried-and-true tips may help you get a handle on things.
1. Outsource
Think about what you can outsource. Hiring employees for functions like bookkeeping, accounting, marketing, and IT management may drive costs much higher. Outsourcing allows you to pay only for services you need without the burden of payroll and benefits.
2. Automate
Identify cumbersome manual processes that can be automated, such as financial transactions, reporting, or certain software-based workflows. We’re not suggesting swapping your people for robots, but if a task can be automated, you should consider it. You can look forward to fewer errors, and your people can focus on higher-value tasks. You’ll need fewer people to do the work, and payroll hours can be reduced accordingly.
3. Reevaluate roles
When you launched your business, you probably needed more oversight as most employees and processes were new. Now that you’re established, some of those roles may be redundant or can be combined with other roles to maximize value. Examine your roles and job descriptions to see which positions can be combined, streamlined, or eliminated.
4. Cross-train employees
Following up on the previous point, cross-training is an excellent way to reduce labor and improve efficiency. Plus, it makes your organization more resilient. If someone gets sick or quits suddenly, you’ll always have someone to jump into their role—no need to recruit! Cross-training is a sustainable strategy that reduces labor costs and maximizes productivity. It’s stimulating for employees and an excellent retention strategy, a win-win for everyone.
5. Allow flexible work
Allowing flexible work can result in reduced payroll hours. For example, if a production employee finishes tasks before the shift ends, leaving early will shave a few hours off their payroll. Plus, many employees prefer this arrangement, so it may improve retention. You might also consider enforcing reduced schedules during slow periods to eliminate idle time.
6. Implement variable pay
Variable pay is essentially pay for performance. For example, if an employee does sales in addition to their regular duties, you might replace some of their salary with commission for the time they spend on that. You might also consider incentivized pay, such as bonuses attached to a specific performance metric, meaning you would pay a reduced wage (maybe switch to hourly vs. salary) plus bonuses. Variable pay has the added bonus (no pun intended) of motivating employees to give it their all. It increases engagement, boosts loyalty, and pays dividends in bottom-line productivity. While it might not be practical to do this for all employees, some will benefit more, and you can certainly implement this strategy for new hires.
7. Prioritize employee retention
As mentioned earlier in the article, recruitment and training occupy massive chunks of your labor costs. Focusing on retention strengthens your business from the inside out, improves your employee brand, and helps to establish a strong, connected internal culture. A few strategies to enhance culture include:
· Provide development opportunities
· Recognize and reward valuable input
· Share challenges and successes
· Transparent communication
· Provide and solicit feedback
· Be flexible
· Emphasize autonomy
Do You Have Underutilized Employees?
Underutilized employees can eat up labor costs pretty quickly. For example, if you have a salaried employee who doesn’t have enough work to keep them productive, you may be better off hiring a contractor. Alternatively, you can consider adding more responsibilities to their role or switching to a variable pay model to optimize costs.
When managing people, some decisions aren’t easy, especially when they involve someone’s livelihood. However, it’s a business. As a cannabis operator, you don’t have a lot of leeway to be sentimental when it comes to your bottom line.
Speak to us about outsourcing your accounting needs, and let’s start reducing your labor costs today.
