Saving money might be costing a lot of money

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So many businesses struggle with how to do more with less. Often this is the wrong question.

It comes from every type of business, restaurants, retailers, developers and consultants and it takes many forms. For example:

  • How to acquire a new customers faster?
  • How to reduce staff and still keep the customers happy?
  • How to sell more with the same resources?

They all have the same focus do more with less, but it is missing the point.

This was exactly the question we faced with a retail client. They wanted to maintain sales in the store and decrease staff. The goal was to reduce costs 10%.

The store owner had figured out that the staff was not busy with customers about 20% of the time and reasoned that they could cut the staff and sell the same amount.

We looked at the store in a different fashion. We looked at the average purchase amount of a customer who worked with a staff member and those who did not. We looked at peak traffic and how many customers were waiting to talk with a staff member and how many left without doing so.

Guess what we found?

Customers who worked with a staff member bought on average 8% more than those who did not.

During peak times about 20% of customer could not work with a staff member. Also during peak times about 82% of customer left without buying anything versus off peak times which was about 70%.

So what does this mean for the retailer? They are understaffed at critical times and losing business because of it. They need to either add people or shift schedules to better match the demand.

While it seems obvious let’s look at the actual impact of staffing changes at peak times. In a day with 50 customers in the store during the peak times the opportunity breaks down like this.

Staffing at peak times

InsufficientCorrect
Customers5050
No purchase walk outs4135
Purchasing customers915
Average sale $     268 $       289
Total sales on peak $  2,412 $    4,342
Difference $    1,930
Increased staffing cost $       200
Increased Revenue $    1,730

Off peak sales averaged $9,648 either way but total sales averaged 12,060 normally and when shifting staff to better serve the peak time the increase total $13,990. This means $1,929 more revenue, which even if you subtract the additional $200 in peak staffing is still a %15 increase in revenue.

Not to mention the additional 6 satisfied customers per day who don’t walk out and potentially go to a competitor.

Be careful when you just cut costs without understanding what is at stake.

Sometimes saving money is leaking money.

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