Rethinking Labor Targets: Smarter KPI Target Setting in Retail

Executive summary:  

Effective labor target setting is critical to retail performance. Misaligned targets can hurt sales, productivity, and employee morale. Retailers can benefit from strategies that align finance and operations, use the right metrics, and turn labor from a cost into a driver of growth. 

The disconnect between finance and operations on labor targets

Target setting can make or break store execution. Set targets too high, and you risk burning out teams. Set them too low, and sales and productivity slip through the cracks. 

So, who should set labor targets? 

Finance typically sets them based on sales forecasts, ratios, and cost-to-sales percentages. This ensures predictability and consistency. 

Operations wants flexibility to match staffing to traffic patterns and real customer demand. 

When these perspectives clash, targets often look solid on paper but fail in reality. The result is either: 

– Overstaffing, where employees stand idle (Harvard Business Review found this can reduce productivity by up to 18%)

– Understaffing during peak demand, costing both sales and customer experience. 

Both scenarios erode performance and create unnecessary friction between teams. 

Why using last year’s labor data fails today

Many retailers still set this year’s labor targets using last year’s results. The problem? Retail traffic and buying patterns no longer follow predictable year-over-year trends. 

If sales were down last year because of external disruptions—weather, supply issues, or regional events—then this year’s targets risk being too conservative. Stores end up short-staffed just as demand rebounds. 

If last year was unusually strong thanks to a trending item, this year’s targets become unrealistic. Stores get overstaffed when demand normalizes, dragging down productivity. 

Both cases leave managers reacting instead of planning, while associates bear the brunt of poor decisions. 

The human impact of misaligned labor

Misaligned labor doesn’t just hurt sales today—it affects retention and morale tomorrow. Gallup research shows employees experiencing burnout are 63% more likely to take a sick day. 

Numbers aside, associates feel the pain of misaligned labor every day.  

– Too few staff: Shoppers can’t get help, conversion drops, and employees burn out. 

– Too many staff: Employees disengage, productivity falls, and the customer experience suffers. 

Gallup research shows employees experiencing burnout are 63% more likely to take a sick day, and Harvard Business Review reports overstaffing can reduce productivity by up to 18%. Balancing labor is about efficiency, culture, and customer connection. 

Productivity metrics that matter

Instead of looking backward, labor planning should be forward-focused and grounded in productivity metrics that reflect real store performance.  

Some of the key measures highlighted include: 

Sales per hour (SPH): Gauges efficiency, but can mask lost sales if peak coverage is off 

Traffic per labor hour (TPLH): Shows how effectively staff are moving customers through checkout and service touchpoints 

Peak coverage: Ensures labor is aligned with customer traffic, preventing lost opportunities 

Together, these metrics form the “sweet spot” for balancing customer experience, sales, and employee morale. 

Spotting trends and building

Labor planning shouldn’t be a static process. Kate explained how trend spotting and benchmarking create a more accurate picture of store needs: 

Labor Banding: Grouping stores by volume (low, mid, high) instead of treating the chain as one average. A high-traffic flagship will need very different targets than a low-volume location. 

Identifying outliers: Recognizing when unusual events or performance spikes distort year-over-year comparisons. 

Establishing productivity benchmarks: Using SPH and TPLH data to set realistic, forward-focused goals that align with both customer demand and associate capacity. 

These methods ensure labor targets reflect where the business is headed—not just where it’s been. 

Proof in performance

When retailers get this right, the results are measurable. One retailer that aligned finance and operations around the right productivity metrics saw: 

+2.6% sales vs. last year 

+$3.08 in conversion visit value 

+$4.96 in average transaction value (+2.8%) 

Even a store hitting SPH targets can leave money on the table if peak coverage is off. Properly aligned metrics ensure stores capture those missed opportunities. 

Leadership and communication drive results

Targets only drive results when store leaders understand and buy into them. Kate stressed that if managers see KPIs as arbitrary, they treat them as guardrails to work around instead of goals to achieve. 

Clear communication and context—why the target matters, how it was built, and what levers managers can pull to influence it—makes the difference between compliance and commitment. 

Takeaway: Labor as a growth driver

Kate’s message was clear: effective target setting exists at the intersection of financial discipline and operational reality. It requires: 

– Alignment between finance and operations 

– Forward-focused, actionable metrics (SPH + TPLH together) 

– Adequate staffing at the right place and time 

– Benchmarking that accounts for store volume and trend shifts 

Labor targets shouldn’t be a copy-paste from last year’s numbers. They should reflect the future of the business and the reality in stores today. When finance and operations align, labor shifts from being a cost to being a driver of growth. 

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