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NEXT. NEXT. Front of the House Economics: Optimizing Payroll Investment. Contents. 4. 14. 24. 27. 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.

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### NEXT

Front of the House Economics:

Optimizing Payroll Investment

Contents

4

14

24

27

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

Fundamental Scheduling Formulas

% of Sales

Total Sales \$ x .15 = payroll budget

\$1000 per Full Time Equivalent

Daily Sales \$

\$1000

x 8 hrs = scheduled hours

Gross Margin Return on Employee (GMROE)

Gross Margin \$

Total Payroll \$

= GMROE

Fundamental Retail Math Formulas

Calculate this month’s AT, UPT, and GMROE

Gross Sales: \$65,250 Transactions: 715 Margin: 42%

Total Payroll: \$9,850 Units sold: 1,240

GMROE

Average Transaction

Units Per Transaction

Total Sales \$

Number of Transactions

Gross Margin \$

Total Payroll \$

Total Units Sold

Number of Transactions

\$27,405

\$9,850

1,240

715

\$65,250

715

= 2.78

= 1.73

= \$91.26

Mythbusters: Payroll Edition

Common “Golden Rules”

• \$3.00 GMROE
• \$1,000/FTE (\$125/employee/hour)
• 15% Revenue
Mythbusters: Payroll Edition

Scenario 1

• Open Sundays
• 43% GM
• Average Wage: \$15/hr

FTEs and Payroll

Mythbusters: Payroll Edition

Scenario 2

• Open Sundays
• 40% GM
• Average Wage: \$15/hr

FTEs and Payroll

Mythbusters: Payroll Edition

For the \$500,000 store, \$3 GMROE is equivalent to 12-17% of Revenue

Mythbusters: Payroll Edition

For the \$2,000,000 store, \$3 GMROE is again equivalent to 12-17% of Revenue

Mythbusters: Payroll Edition

For the \$500,000 store, \$1,000/FTE yields a payroll of only \$40,110, significantly lower than the other rules.

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.

Planning by Service Levels
• How many people should we schedule today?
• Rev/Employee?
• GMROE?
• % of Sales?

*Based on 43% margin and \$15/hr

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?

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.

Accounting for Accounting
• \$4,000 Day
• How many would you schedule?
• \$1000 FTE works for sales….BUT what are we forgetting?

Back of House

Exploring a Combined Approach
• GMROE to establish the total payroll budget
• \$1,000/FTE to establish FOH and BOH budgets

GM \$ / GMROE Target = Total Payroll Budget

1

Sales / # of Days Open/ \$ per FTE = FOH FTEs

2

# of FTE’s for FOH * 2080 * Average Wage = FOH Payroll

3

Total Payroll Budget - FOH Payroll = BOH Payroll

4

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

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
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
One-Timers
• 8 hour Saturday
• 70% Footwear
• Average Footwear Price: \$115
One-Timers
• 8 hour Saturday
• 90% Footwear
• Average Footwear Price: \$95

Mathematically, this works, but What does it not consider?

Plan by Real Estate: 1,400’ Showroom

Fit Rooms

Womens

Fitting

Footwear

Fitting

Fitting

Accs

Mens

Womens

Mens

Decompression zone

Cash wrap

Accs

Plan by Real Estate: 3,500’ Showroom

Fit Rooms

Footwear

Accs

Fitting

Fitting

Fitting

Fitting

Womens

Womens

Fitting

Mens

Womens

Mens

W

Accs

Womens

Womens

W

Accs

Mens

Mens

Decompression zone

Accs

Womens

Cash wrap

Zone Offense

Fit Rooms

Footwear

Accs

Zone 1

Fitting

Fitting

Fitting

Fitting

Womens

Womens

Fitting

Mens

Womens

Mens

W

Zone 2

Accs

Womens

Womens

Zone 3

W

Accs

Mens

Mens

Decompression zone

Accs

Womens

Cash wrap

• Guarantees full service on busy days
• Allows for ‘hand off’ so footwear customers are not abandoned
• Success formula combines scheduling and training