8 Simple Ways to Reduce Labor Costs

Vladik Rikhter
Published On:
Jun 24, 2012
It would be difficult to find a small business or startup these days that isn’t concerned with labor costs. Whether it’s a standard 40 hours/week or overtime that’s driving up costs, there are ways to mitigate the costs. We thought we’d put together a list of some examples that we think illustrate the best ways to reduce direct labor costs.

1. Review your procedures

You always have to circle back and check yourself. Are you doing things right? Have new technologies developed that may streamline your procedures and make your employees’ time more productive? Stay in tune with your partners and competitors, keep your ear to the ground, and make sure that you are up to date on the latest approaches and technologies that are informing your niche.

2. Upgrade where possible

An investment upfront? Sure; but it doesn’t necessarily have to be a huge one. Implementing smart changes, where needed, will deliver big ROI by reducing task times and increasing productivity. Some upgrades, like implementing an online time clock, can not only help with productivity, but also transform culture to a degree by setting new standards for behavior.

3. Train people well from the beginning

If they get it right the first time, they don’t have to do it again, right? When onboarding employees, make sure that you train them - thoroughly. When implementing new technologies, make sure everyone has a grasp of them. You’ll save yourself headaches down the road, and you’ll have a more efficient workforce.

4. Tweak your layout

Layout has obvious implications in a factory, for example, where a production chain’s very livelihood depends on the floor’s layout, but even an office needs to consider this issue. Even if it’s just a matter of where a printer is, making adjustments to optimize your space and layout will improve productivity. Improved productivity will reduce labor costs- it's as simple as that.

5. Keep management cohesive and on point

Whether you’re managing a team on your own or you have a battalion of managers, make sure that you’re all on the same page about how you communicate about and encourage workflow and productivity. Nothing can drive direct labor costs up faster than irregular and erratic management.

6. Outsource where you can

There is a whole world of resources out there for your business. Sometimes a part-time freelancer can be a fast, low-cost choice that keeps everything at your business on track. Don’t get stuck on the idea that you have to throw your full-time employees into overtime to get a job done.

7. Cross-train

Your employees are smart— let them show you how smart. There really isn’t room in business these days for maintaining narrow employee categories. See what your people can do, and get everyone working across the company instead of in a box, exchanging ideas and pulling their weight wherever they can.

8. Try 4-day workweeks

Four-day workweeks may be a hard idea for a lot of us to get used to, but it’s an idea that’s catching on more and more. You would be surprised at how many of your employees would sacrifice a bit of pay to have a bit more time to themselves and with their friends and family. Ask around and see who would be interested in taking on a 4 day a week, 10 hour a day schedule— you may find that you have a pretty sizable way to reduce direct labor costs with this one. Do you have more ideas that you’d like to add to our list? We’d love to hear from you in the comments below. Let us know what examples you have of good ways to reduce direct labor costs.

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