How to Manage Retail Payroll and Maintain a Low Payroll to Sales Ratio

Many small retail businesses are learning to manage payroll on their own. The problem is that it's easy to get overwhelmed by ever-growing piles of paperwork and lose sight of the big picture – revenue. Before you know it, profits have plummeted and you're feeling frustrated.

The payroll-to-sales ratio is a crucial part of keeping your business running smoothly, and understanding what it means and how to keep it low will solve many problems down the road.

Here's our hands-on overview of everything you need to know about payroll to sales ratios, how to optimize your ratio, and the top ten payroll software to achieve it.

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What is the payroll to sales ratio?

Your payroll-to-sales ratio is the percentage of your income spent on payroll expenses. Here, a low percentage is good because it means your business is more profitable. The higher your sales and the lower your labor costs, the lower your percentage will be.

What is the optimal payroll to sales ratio and how to achieve it?

Optimal salary-to-sales ratios vary from industry to industry. According to a breakdown from Netsuite, the average payroll-to-sales ratio for retail is between 10% and 20%. So it's a good idea to make it your benchmark and avoid going over 20%.

To get an optimal percentage, you can either increase sales, decrease payroll costs, or both. But it's not easy to put into practice. We'll talk about that later.

How to Calculate the Payroll to Sales Ratio

You can use a simple mathematical equation to calculate your store's payroll to sales ratio:

Let's say your monthly income is $25,000 and your payroll expenses are $2,750. 25,000 divided by 2750 is 0.11. Then multiply 0.11 by 100, which gives you 11%. This would be your payroll to sales ratio.

If the average ratio of payroll to sales is 10-20%, then the retail store in our example is doing very well.

How to Maintain a Low Payroll to Sales Ratio

The quickest solution to maintaining a low payroll-to-sales ratio is simply to reduce employee hours. But that's not a good course of action if you need the employees you have and want to keep them happy. What you do with your employees' hours is more important than cutting them. For example, reducing your percentage to 10% will not benefit your business if it leaves you understaffed.

Here are other ways to maintain a low payroll to sales ratio:

Hire only necessary staff

Reducing payroll costs starts with hiring. Or rather, no hiring. Look at everything from the number of shifts to your busiest hours to get a clear idea of ​​the support you really need. This will help minimize excess staff costs.

Plan employee shifts carefully

Careful planning can pay off. Make a habit of assigning shifts in this order:

Management Full-time senior employees New full-time employees Part-time

As you begin to schedule your part-timers, you will only be filling in the gaps in your schedule. You won't have to squeeze as many of your full-time employees' shifts into days that are already well covered.

Also share your schedule with your team in advance. If something goes wrong, you'll have plenty of time to fix the issues sooner. This means there is less risk that the only person available will be about to work overtime.

Using staff scheduling tools can help you do both of these things. Simply fill in your budget and employee availability, then watch the software automatically create your schedule. Then you can use an app like Homebase to publish the calendar and...