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Front of the House Economics:
Optimizing Payroll Investment
Contents
Scheduling Metrics
4
Service Levels
14
People vs. Real Estate
24
Tools of the Trade
27
3
Fundamental Front of House Retail Math Formulas
Average Transaction (AT)
Total Sales $
Number of Transactions
Units Per Transaction
(UPT)
Total Units Sold
Number of Transactions
Conversion %
Number of Customers
Number of Tickets
4
Fundamental Scheduling Formulas
% of Sales
Total Sales $ x .15 = payroll budget
$1000 per Full Time Equivalent
Daily Sales $ x 8 hrs = scheduled hours
$1000
Gross Margin Return on Employee
(GMROE)
Gross Margin $
= GMROE
Total Payroll $
5
Fundamental Retail Math Formulas
Calculate this month’s AT, UPT, and GMROE
Gross Sales: $65,250
Total Payroll: $9,850
Transactions: 715
Units sold: 1,240
Average Transaction
Units Per Transaction
Total Sales $
Number of Transactions
Total Units Sold
Number of Transactions
$65,250
715
= $91.26
1,240
715
= 1.73
Margin: 42%
GMROE
Gross Margin $
Total Payroll $
$27,405
$9,850
= 2.78
6
Mythbusters: Payroll Edition
Common “Golden Rules”
> $3.00 GMROE
> $1,000/FTE ($125/employee/hour)
> 15% Revenue
7
Mythbusters: Payroll Edition
Scenario 1
> Open Sundays
> 43% GM
> Average Wage: $15/hr
FTEs and Payroll
Sales
$500,000
$2,000,00
$3.00 GRM0E
$71,667 (2.3 FTEs)
$286,667 (9.2 FTEs)
$1,000/FTE
$42,975 (1.4 FTEs)
$200,643 (6.4 FTEs)
15% Revenue
$75,000 (2.4 FTEs)
$300,000 (9.6 FTEs)
8
Mythbusters: Payroll Edition
Scenario 2
> Open Sundays
> 40% GM
> Average Wage: $15/hr
FTEs and Payroll
Sales
$500,000
$2,000,00
$3.00 GRM0E
$66,667 (2.1 FTEs)
$266,667 (8.6 FTEs)
$1,000/FTE
$42,975 (1.4 FTEs)
$200,643 (6.4 FTEs)
15% Revenue
$75,000 (2.4 FTEs)
$300,000 (9.6 FTEs)
9
Mythbusters: Payroll Edition
For the $500,000 store, $3 GMROE is equivalent to 12-17% of Revenue
10
Mythbusters: Payroll Edition
For the $2,000,000 store, $3 GMROE is again equivalent to 12-17% of Revenue
11
Mythbusters: Payroll Edition
For the $500,000 store, $1,000/FTE yields a payroll of only $40,110,
significantly lower than the other rules.
12
Mythbusters: Payroll Edition
For the $2,000,000 store, $1,000/FTE yields a payroll of only $187,267, also
significantly lower than the other rules.
13
Planning by Service Levels
> How many people should we schedule today?
> Rev/Employee?
> GMROE?
> % of Sales?
*Based on 43% margin and $15/hr
14
The Incremental Associate
> $4,000 Day
> What if you add one more?
*Based on 43% margin, $15/hr rate and 15% payroll burden
If you added an additional associate to the floor, could they generate more
than $40 an hour in incremental sales?
15
Planning by Service Levels
Average Footwear Price
43% of the days with less than 20 transaction had a higher average sale than
the highest day with 20 or more transactions.
16
Accounting for Accounting
> $4,000 Day
> How many would you schedule?
> $1000 FTE works for sales….BUT what are we forgetting?
Back of House
17
Exploring a Combined Approach
> GMROE to establish the total payroll budget
> $1,000/FTE to establish FOH and BOH budgets
1
GM $ / GMROE Target = Total Payroll Budget
2
Sales / # of Days Open/ $ per FTE = FOH FTEs
3
# of FTE’s for FOH * 2080 * Average Wage = FOH Payroll
4
Total Payroll Budget - FOH Payroll = BOH Payroll
18
Exploring a Combined Approach
= $500,000/363 days /$1,000
= 1.38 FTEs * $14 * 2,080 Hours
= $71,667 – $40,110
= (43% x Sales) / 3 : $3.00 GMROE, Total
Payroll Budget
19
Exploring a Combined Approach
> Owner role initially includes GM, Floor Manager, and buyers
> As sales increase, responsibilities are distributed, first on a part-time
basis, with associates filling both FOH and BOH roles
> Owner may continue to fill a specific role as the business grows, but the
roles must be clearly defined
20
Exploring a Combined Approach
Quick Tips
> 65% FOH & 35% BOH payroll allocation
> Salary for FT Back of House only
> Part Time rocks paid by stipend
21
One-Timers
> 8 hour Saturday
> 70% Footwear
> Average Footwear Price: $115
22
One-Timers
> 8 hour Saturday
> 90% Footwear
> Average Footwear Price: $95
Mathematically, this works, but What does it not consider?
23
Plan by Real Estate: 1,400’ Showroom
Fitting
Womens
Footwear
Fit Rooms
Fitting
Fitting
Accs
Decomp
ression
zone
Accs
Womens
24
Plan by Real Estate: 3,500’ Showroom
Footwear
Fitting
Fitting
Womens
Womens
Mens
W
Mens
Accs
Mens
W
Accs
Cash
wrap
Decomp
ression
zone
Womens
Womens
Mens
Fitting
Fitting
Fitting
Accs
Fit Rooms
Womens
25
Zone Offense
Footwear
Fitting
Womens
Womens
Mens
W
Zone 2
Mens
Accs
Mens
Zone
3
Accs
Cash
wrap
W
Womens
Decomp
ression
zone
Womens
Mens
Fitting
Fitting
Fitting
Zone 1
Fitting
Accs
Fit Rooms
Womens
> Guarantees full service on busy days
> Allows for ‘hand off’ so footwear customers are not abandoned
> Success formula combines scheduling and training
26
Tools of the Trade
• Scheduling tool demo:
WhenToWork.com
• Faculty: Skinny Raven Managers
James Dooley & Ben Stolpman
27
Weekly Schedule
28
Graphical Weekly Schedule
29
Employee Time Off Preference
30
Unpublished Blank Schedule
31
Time Off Requests
32
Import Previous Week Template
33
Messaging
34