How to Estimate Seasonal Staffing Level
It’s about the time of year that small-business owners struggle with the common challenge of deciding how many winter employees to hire. Too many results in the frustrating experience of paying employees to hang out, but too few results in customers leaving and deciding not to return. Given my background in engineering, no one will be surprised that I use math to help solve this problem. Because not everyone is a super-dork who uses math to solve personnel challenges, I’ve developed a simple approach to help you generate a first pass estimate.
The math will be based around the newsvendor model, which is generally used for inventory management. Of course personnel are not inventory, but I use the newsvendor model only to give you a good, quantitative way to consider staffing levels.
For most small-business owners, the optimum staffing level estimate will be higher than what was considered. Many owners focus on minimizing expenses to avoid that experience of paying people to chill. But in most cases, the losses are higher when customers are annoyed enough to take their business elsewhere. The three key figures you will need are demand, loss for hiring too many employees, and loss for hiring too few.
Start by estimating how many customers you will have in the upcoming season. Begin with your data from the prior years. Compare your year to date sales versus the prior year to date sales to judge if you’re on track to serve more or fewer customers this season. Also, compare year to date local sales tax collections versus prior years to gauge how your local economy is performing. This will allow you to forecast how many customers you expect to serve this season. Combine this with how many employees you need per customer to generate a quick estimate of employee staffing.
Some owners stop here, but the next few steps will ensure that your staff levels are sufficient to handle the daily variation in customers. If you plan for the average, there will be many days where you are understaffed and many days where you are overstaffed. The mathematical term referring to daily variation is standard deviation. You are going to need to know the standard deviation of your demand. Luckily Excel will do this for you – add your demand data and type “=stdev(“select your demand data”)”. The function will spit out a single number. Math can be fun! Sometimes at least.
Now that we have the demand estimate, we need to estimate the loss from having too many staff members. This is the easiest of the three figures to generate. Simply multiply the hourly rate of your seasonal staff by how many hours per day each new staff member will be working. Keep this number with the demand numbers and move on to the third key figure.
The potential loss from hiring too few staff members is best estimated by asking staff members who worked in prior seasons what they saw in the customers at peak times. Were they happy? Or annoyed? Did any leave your location out of frustration? If you have a restaurant, how do the tips compare in the peak times versus non-seasonal? Use the average revenue per customer and your business’s average gross margin to estimate the value that each customer brings. Then estimate how many customers per day you might lose due to understaffing, without forgetting that if they are sufficiently upset they may not return to your location in off-peak times.
Okay, it’s time for math using the following example. Based on your demand history, you needed ten employees in the prior years, with a standard deviation of two to manage daily variance. You pay your employees an average of $15 per hour. Your average customer generates a gross profit of $25 per visit and visits your location three times per year. Finally, based on conversations with your experienced staff, you know that roughly two customers leave very annoyed at your staffing level of ten. The math is:
In this case, the estimated demand is 10 with a standard deviation of 2. Because the employee is paid $15 per hour for 8 hours per day, this is your potential loss if you bring on too much staff. The potential loss of being understaffed is the number of customers who walk away (two), times the number of times they visit in a year (three), times the gross profit per customer (25).
Here the owner should bring on two to three additional employees versus the prior year; an increase of 25%. Good luck with your math problem! Give us a call or send us an e-mail and we would be happy to help.