Payroll is often the largest expense in a business, but the real challenge isn’t usually the cost. It’s actually a problem of poor labor utilization. In this conversation, Gwen Bortner and Tonya Kubo tackle the common frustrations independent retailers face when staffing their stores. You’ll discover how overstaffing for rare high-revenue days quietly drains your profits every single month. Gwen and Tonya share practical ways to keep your team active and productive even when the showroom floor’s completely quiet. They’ll also explain why you must account for the value of your own time to build a truly sustainable operation.

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Why Payroll Feels So Expensive

The Payroll Challenge In Independent Retail

We are back with part two of our series on what independent retailers are struggling with. Which comes on the heels of Gwen’s appearance at h+h Americas and conversations that she’s had there and with several independent retailers. This is one that, though, we’re going to talk about in a retail context. It isn’t just a retail issue. Payroll is the most expensive business expense for any business. This is why we have entire departments called Human Resources because human capital is expensive and hard to replace, honestly.

It’s easy to replace a job in many cases, but everybody brings unique qualities to a job. That can make it feel hard to replace it. One of the things that I have heard a lot, because Gwen, you work with businesses throughout North America at this point. You’ve worked with businesses in Europe and various other places, and payroll is always a cost. It’s always the highest line item. It’s even higher than inventory and we talked about inventory in the last episode. One of the reasons that payroll is painful even in areas where wages are low is because we’re in California. Minimum wage is pretty high here.

The Difference Between Cost And Utilization

Where wages are low, why it’s still problematic, especially for the independent retailer. It’s not so much the labor cost. It’s the labor utilization. You talk about this all the time. It’s like me as a service provider, for instance. I can bring people in just when I have a big project that takes more than me to deliver. When you own a brick-and-mortar shop, you’ve got a staff at your store anytime it’s open. Whether customers choose to show up or not. That creates this challenge between, “I have to have people here, but am I getting my money’s worth if I don’t have people shopping in the store?” Gwen, why don’t you give me your perspective on why payroll is a challenge for the independent retailer?

You hit on the key thing, which is there’s a certain amount of staff hours that you have to pay for, regardless if anyone ever walks in the store. It’s why I will encourage small retail businesses, particularly in environments where the weather can be extreme, to close on uncertain days. The chance anyone’s going to come out to buy this thing is slim. You’ve got a certain amount of cost. You’re going to pay rent regardless. You’re going to pay some amount of utilities regardless. There’s certain things that have to happen.

Payroll is one of those things, unless you choose to close the store. In areas like where they have blizzards or those things. A day before, when there’s supposed to be a big blizzard, send out a message in whatever forms you have, to say, “We’re not going to open because we don’t expect any of you are going to come here anyway.” You don’t say that but that’s what you’re saying. Part of it is so you can save that cost because that is the challenge with retail. It’s trying to figure out what are those hours that it makes sense to be open. What are those days that it makes sense to be open?

Every business is different. I’m not going to say, “The best thing is blah, blah, blah,” because of course context matters. This is another example. It depends on what you’re selling, where you are, and who your customer is. There’s a whole lot of pieces that go into that. It is the challenge because you’ve got to have someone who knows how to talk about the product, who knows how to run the cash register, who knows how to do those things. Regardless of whether you have a $100 day or whether you have a $5,000 day. You need that person. When you have the $5000 day, you don’t think about it for a moment, but when you have the $100 day, you do because it’s like, “I didn’t even cover my payroll.” That’s the biggest issue that you see. There is this cost because you’ve said, “I’m going to be open.”

What do you think the average retailer gets wrong in terms of their staffing and their payroll?

The Pitfalls Of Overstaffing For “Perfect” Days

There are two things that I see pretty consistently that come up. One is, a lot of retailers are overstaffed. They’re staffed for the $5,000 day. Although, the $5,000 day only happens once a month but they staffed every day for it. Overstaffing can become a huge issue. Sometimes, the overstaffing looks like what I’m going to call a safety issue. It’s like, “I don’t want anyone to be in the store by themselves.” In some cases, I can see that.

Most of the time when we’re talking about independent retail, we are not talking about the necessity of life. The answer of, why do you have two people during these hours? “I don’t want anyone to have to wait.” How long would they have to wait? How painful would that be for them? They’re probably coming into your store because they all love the thing that you sell. Whether it’s yarn, fabric, pet supplies, or plants. The list goes on and on.

I’ve always been buying from a local person, but especially since working with you. I do go out of my way to buy a local now more than ever before. I think of two recent instances. One is, I went to a local nursery because I was going to buy some plants for my yard. They had two people, but there’s one person I hadn’t seen before. I know that one person doesn’t usually work in front of the house. They’re more of a back-of-the-house person, but they were there.

Payroll isn't just about what you pay per hour. It's about your labor utilization when the front door's quiet. Share on X

The other person was there because this is a busy time of year in terms of working at a nursery. We had to wait 30 minutes to be helped. There were like four people in front of us. I spent 30 minutes looking at pretty plants. Not even plants I want to buy. They’re not even plants that I have any interest in growing but they were pretty. I like seeing how they grow them and it was nice. The only thing that bothered me at all was the fact that there was no place to sit next to the pretty plants.

Not as big of a deal. Although you were looking at pretty plants that you weren’t going to buy. My other experience is a lot of times you discover a pretty plant that you didn’t know that you love and ended up buying. That’s often what happens in these environments. I’m going to use your plant example. I went to buy this tree and these three bushes because that’s what my layout is. While you’re there, you’re like, “I had no idea about this thing. This thing would be perfect in this spot that I haven’t figured out what I want for yet.” You often will get a bigger sale by not being quite so efficient with your customers.

Now, I have to tell you the whole story. I went to buy a mandarin tree or a citrus tree. Since we had 30 minutes to wait, we looked at some annuals. I ended up buying five strawberry plants because they had strawberry plants. The idea was I was going to buy this citrus tree to finish my citrus grove. I wanted to see if they had a particular type of pepper plant, which they didn’t but they had these strawberry plants.

Strawberry plants looked good and we wanted to grow strawberries anyway. The three minutes we were waiting, we had that conversation because hubby and I are there together. It was like, “Since we’re here and we’ve made the drive here and we’ve been waiting. We know we want to buy two persimmon trees. We weren’t going to buy them now but shouldn’t we just buy those too?” “We’ll buy those, too.” By the time it got to our turn, we had gone from, “We’re here to buy one citrus tree,” to, “We’re going to buy three citrus trees and five strawberry plants.”

Why Being “Too Efficient” Can Actually Cost You Sales

Your story is way more typical than not. Particularly for independent retail. Back to independent retail. It tends to be more focused. Different when you’re at the quick stop or whatever that thing. Not the same. When you’re in independent retail, that truly is independent retail, that’s usually the case. I’m there because I want a thing, but maybe I also want this other thing. Being super efficient is one of those things that costs you more because you’ve got more staffing. Also, it’s probably costing you in sales.

 

 

You’re probably not selling quite as much as you would. Quite honestly, you can usually tell. I’ve been a cashier. I’ve done this type of work before. It’s been a long time. You can tell the person who is on a clock because they’re doing this between this appointment, that appointment and this other thing. They thought they could just come in, but the one citrus tree and get out. You reach three people behind and say, “You look like you’ve got an appointment.” It’s like, “I need to get out of here.” You just ask everybody, “Are you okay if I just? They’ve got one citrus tree. It’ll take just a minute?” They’re like, “Go ahead.”

Back to, this is not like the grocery store or some chore that you have to do. One of the things is overstaffing. Often, we’re overstepping for that $5,000 day. What you described in your nursery example is, if you’re doing it for safety, which is a little different to argue. Have the backup person be someone who has a very focused other job other than serving the front-end customers. They are bookkeepers, doing inventory management, receiving, purchasing, or whatever. It could be the manager. It could be the owner who has other things that they need to be doing that they can be doing in the back office. One of our client’s key words is, “The bus just pulled up.”

That’s their that’s their sign when the line is getting too long or when there’s too many people to help or waiting to be helped or wandering around looking like there’s a lot of people that need help out on the floor but I’ve got a whole line that I’m trying to deal with as the cashier. They can come out and help for that $5,000 a day situation. The rest of the time they’re busy doing other work. That’s the first thing. Make sure that your staffing levels are appropriate. The other thing that happens is we don’t make sure that our folks that are at the front of the house know all of the things and/or are expected to do a certain number of things that aren’t directly related to getting you to buy your citrus tree.

Maximizing Payroll: Productive Tasks For Downtime

Moving into, how do you get the most of the payroll investment when there’s not a customer to help?

Exactly. That’s the other piece. I find a lot of folks when they’ve been hired in the sales role think that they’re only role is to help a customer when a customer walks through the door. If there isn’t a customer, they’re on their phone. They’re scrolling. They’re doing whatever. No, there’s lots of other things that can be done. They aren’t necessarily as fun as helping a customer. I’ll be honest. There’s almost always some amount of cleaning, sweeping, tidying types of things that need to be done. A lot of these businesses create lots of dust. Neatness matters. Even if you’ve got someone who officially comes in and cleans once a week or whatever. There’s still some amount of that can go on.

There is restocking of shelves. Sometimes, folks want people to do that. Sometimes, you don’t restock shelves only. So and so restock shelves, but there’s always straightening of shelves. Going back to your pet food example that we were talking about before. It’s making sure that the three bags that got purchased, there’s still two bags waiting in the back. Those are moved to the front so that they’re easy to access when someone’s not having to make some big reach to try and get to that.

That work takes a surprisingly large amount of time and gets overlooked. Part of it is because we start to become blind to it when we’re in the shop all the time. Part of it is going through making sure that shelves are neat and the product looks the way that we want it to look. We have to train people on this. We have to make sure that they know this is part of their role. There can be other rules that they’re also responsible for, depending on what the industry is.

In the craft world, a lot of times, there are samples that need to be made. If someone’s not there, you need to be working on a sample. We’re not paying you extra for this because we’re paying you to be here to work. You’re going to work on a sample. It might be a small piece. There’s all sorts of things that can look like. Sometimes, it’s following up with customers that have orders that are waiting that have gotten picked up. There’s this long list of things that we don’t think about because we, as an owner, would do them instinctively.

Staffing for your absolute busiest day of the month every single day is a fast track to zero profit margins. Share on X

It’s obvious to us that they need to be done. We don’t think about enumerating them and saying, “After this, this is your next priority, so on and so forth.” Depending on how you manage your stock, you may need to do spot counts of inventory. That can be part of the list of, “One of the things you need to do is count the X, Y, and Z and report that back.” They may not be the one putting it into the system, but they’re the ones who are going to count it because there needs to be a spot count.

There’s lots of things that can be done. What I encourage an owner to do is to say, “List all of the things that you would be doing if there wasn’t anybody else in the store.” Anything that you might possibly do. They always start with the things that only they can do. Those are owner activities. Over time, if you keep pushing them, they’ll get to the things that’s like, “You don’t need to be doing that. That could be an employee.” That becomes that list. That is the other thing that gets missed. We don’t make sure that the staff that we have is being fully utilized. Not because they don’t want to do the work but because they just don’t know it’s the work that needs to be done.

The Hidden Payroll Trap: Not Paying Yourself

You’re talking about the things that their owners do, versus writing that down. It also makes me wonder, though. One of the things that I see as a problem is when the independent retailer is working to get themselves out of the day-to-day more. They freak out about the payroll costs and they’re like, “I can’t pull myself out of the business because payroll is too expensive.” What we have come to find out is they’re not paying themselves for the hours they work on the floor.

They suffer sticker shock when they are paying a staff member to be on the floor. It’s like, “I shouldn’t have to pay this person to do this thing when we’re not bringing in any money.” The problem isn’t the payroll expense. The problem is that that’s a payroll expense the owner should have always factored in.

 

 

It is a problem that we’ll see with folks, especially when they’re first starting out. Part of what they will do and justify in their mind and potentially rightly so, is they are reinvesting into the business. The way they’re reinvesting in the business is putting in their time without being paid. When you’re first starting out, there’s some amount of that that probably will have to be done that it makes perfect sense. What I encourage folks to do from the beginning is still track how much you should be paid for the job that you’re doing.

When it’s being a cashier for the business, you should be being paid whatever you would pay any other person for that role. When you’re the manager of the business, that’s probably a different rate. The pieces go on because of exactly what you said. If something comes up and you need someone to cover the hours that are normally your hours, you’re going to have to pay them. You need to know what is that payroll burden that’s there, whether you’re doing it or not.

If you can’t get to a point in a relatively short period of time, and when I say relatively short, this is another context that matters. I would say in the 6 to 18 month range, you can’t get to a point where you are paying yourself at least as much as you would pay someone else to do the job. You haven’t created a business that’s sustainable because someone has to do that job. Someone needs to get paid for it. I’ve seen many times where folks will buy someone else’s business that looks successful, appears successful, and the books say they’re successful.

I always ask questions later that they never asked me beforehand, which is always problematic. You should talk to someone beforehand that knows to ask different questions. What we find often is the reason it looked profitable is the profit was how much money should have been going, if not more to do the work that the owner was doing. I’m going to make up random numbers that may or may not be true. It may say, “The business made $40,000 this year.” What you find is if you paid someone to do the work that the owner was doing. It would be $60,000. Therefore, the business lost $20,000 because they didn’t pay themselves.

It looks profitable. That is not profitable because as an owner, the business has to make money without you putting time into it. This is the example I use all the time. If I invest in Ford Motor Company, they’re not expecting me to show up and work on the line. They don’t want me to show up and work on the line. If I do show up and work on the line, I get paid as a worker on the line. This is that same thing. There’s an ownership piece that should generate money, but there’s also the piece of the business itself.

If you can't afford to pay yourself a fair market rate to run your cash register, your business isn't sustainable. Share on X

It is true. A lot of people get stuck with sticker shops because they’re like, “I’m making less than I was before.” It’s like, are you working as much in the business? No. “I’m working a little bit less.” Were you paying yourself for the time you were working in the business? No. Are you paying someone for that time now? Yes. Simple math.

On the topic of payroll being expensive or at least feeling expensive. What else were you hearing at the conference or whether conversations coming up from h+h Americas or from other retailers that you think are important to address before we close this episode?

Challenging “Standard” Store Hours

This is another example of, you’ve got to get clear on what your business needs. Not necessarily what’s expected based on all the other businesses around you. One of the conversations that come up in these environments regularly are, “What are your hours?” A lot of people go by what I’m going to call standard store hours, because that’s what they think that they should do. I had a client a number of years ago who dropped their store hours almost in half. Not quite, and didn’t change the amount that they were making because the people who were coming to shop and buy, only came in the smaller piece.

They had opened their store hours because that’s when stores are open. Sometimes you’re in an environment where you are required to be open at certain hours. That would be something I would look at to say, “That does actually work for my business?” What days or what hours? Don’t get caught but this is what everybody does because that may or may not be useful for you and who your customer is and what you’re selling.

Sometimes, it is driven by the product that you’re selling. I can’t imagine a nursery being open in the middle of the night, like night hours. That would be weird because you expect to see plants in the sun and you’re outside. There’s all sorts of things like that. It would be odd to me. Maybe instead of closing at 5:00. You stay open until 6:00 or 7:00. I don’t know if this is true because I have been paying close attention, but you probably can tell me. Nursery may change their hours for summer hours versus winter hours because the daylight changes. There’s more people coming during certain seasons. You don’t have to keep your hours always the same. Don’t get caught doing what everyone is doing.

Sometimes being too efficient with customers costs you sales. Slow down and let them browse the shelves. Share on X

That’s a good point. The nursery that I love is open Tuesday through Saturday. They are open those days year-round. However, in the winter months, I only discovered them, so I can’t speak to what they do in the fall. In the winter they are open from noon to 5:00 Tuesday through Saturday. I want to say it’s around April 15th-ish, they open up for their spring gardening hours, is what they call it, and then they are open 8:00 to 5:00 Tuesday through Saturday.

They are open 8:00 to 5:00 Tuesday through Saturday. I want to say from April to August. The rest of the time, it’s noon to 5:00. They are lovely. They don’t have a fancy website. You can’t buy anything on the website, but you can call them. You can email them if you know exactly what you want and you want to pick it up quickly. They’ll make an appointment for you to do that, but it has to be within those hours. You’re right, they’re not open all the time.

To your point about people waiting. There is another business. It’s a little different model but they often only staff one person in town. That person just closes the shop when they need to go to the bathroom or when they take a lunch break. There’s a little, “We’ll be back by,” sign. I have gone there. I want to get something done quickly on my lunch break and they’ve been closed. Do you know what, Gwen? I just made Brian go back after work.

It’s one of those things that we think we’re going to lose a customer and if they truly are a customer or not. We may lose that particular sale that moment, that time possibly, but usually not. Usually, they’ll decide to come later to buy the thing. Part of it is what you condition your customers to expect. The real trap that people feel with payroll is they think they need more than they do and then they don’t calculate the piece of where they do need it or where they do need to count it like their own hours that they’re investing in it.

When something comes up and they do, they’re taking vacation. It’s like, “This is a horrible week.” It’s like, “It’s a good week. If you would have been working and not paying yourself, you would have said this was a good week.” This is important information to have as you’re looking forward to it. Be clear about what roles you need to be paying someone to do.

One of my other clients has realized that she’s been doing a lot of back-office work because she thought she had to. Although, she has someone who loves the back-office work, who she trusts and does a good job. She’s been paying other people to be in front of the store because she felt like, “That’s lower-level work. I shouldn’t do that.” It’s the part that she loves and people come specifically to meet her.

You built the payroll trap, which means you're the one who can design a smart exit strategy to get out of it. Share on X

She’s been able to let go a couple of staff people because she isn’t trying to staff the store without her when she wants to be in front of the store. Make sure you aren’t getting caught in any of the, “I have to pay someone to do this because I shouldn’t be doing this.” Maybe you can’t do it. That’s a different thing but looking at where the best places to be investing in staff and what those investments look like.

How To Build Your Exit Strategy From The Payroll Trap

To wrap us up. It’s about realizing that if you feel trapped by your payroll, chances are you built the trap. Since you build a trap, you know how to get out of it. If it doesn’t make perfect sense to you, if you don’t see it clearly like what your exit strategy from your trap should be or if some of these ideas are new to you. You haven’t thought about them and you’re not sure if they’re going to work in your situation. Book a Clarity call with Gwen at www.tonyakubo.com/Clarity because, yet again, I am no help to you in these circumstances. This is a Gwen thing and only a Gwen thing.

When we come back next time, we're going to continue this series. We've got part three coming up and part three is what I consider the other side of this payroll coin, which is the customer service trap. I do think that there are some sacred cows that give spoiled milk when it comes to customer service that also affect our payroll expenses and ultimately affect the profitability of our business. Please join us for that. If you can't wait, get on Gwen's calendar at www.tonyakubo.com/Clarity and otherwise, we will catch you next time.

 

Mentioned in This Episode

• Gwen Bortner on LinkedIn
• Tonya Kubo
• Tonya Kubo on LinkedIn
• www.tonyakubo.com/Clarity
• Everyone Knows They Have An Inventory Problem. Why Can’t They Fix It? – past episode

 

About Your Hosts

Gwen Bortner has spent four decades advising executives and entrepreneurs in 45+ industries. She helps women succeed in business without sacrificing happiness by identifying their true desires and aligning their business functions. She spots overlooked bottlenecks and crafts efficient plans toward sustainable success that center your values and priorities. Known for her unique approach to problem-solving and accountability through the G.E.A.R.S. framework, Gwen empowers clients to achieve their definition of success without sacrificing what matters most.

Tonya Kubo is a marketing strategist and community builder who helps entrepreneurs build thriving online communities. As co-host of The Business You Really Want and Chief Marketing and Operations Officer (CMOO) at Everyday Effectiveness, she keeps conversations on track and ensures complex business concepts are accessible to everyone. A master facilitator with 18+ years of experience in online community building, Tonya takes a people-first approach to marketing and centers the human experience in all she does.