What Is Labor Forecasting? Definition, Examples, & More

As a manager, one of your biggest challenges involves ensuring you have enough people at work to keep things running smoothly, which requires effective labor forecasting. 

That’s easier said than done. If you don’t schedule enough workers, your shift will be overwhelmed. Too many employees, and you’re paying for idle time. Overstaffing is especially concerning amid rising compensation costs.That’s why performing labor forecasting is so beneficial. 

Workforce scheduling optimization can help you make smarter staffing decisions and reduce costs. Sound complicated? It doesn’t have to be, thanks to tools like When I Work. Try our platform for free and see how easy it is to predict your labor needs.

Key takeaways:

• Understaffing can lead to burnout and poor productivity
• Overstaffing hurts your bottom line and leads to bloated payroll costs
• There are several different ways to estimate labor needs
• The best approach involves using employee scheduling tools
• These tools can automate forecasting, shift optimization, and more

Table of contents:

• What is labor forecasting?
• What are the benefits of labor forecasting?
• Methods of labor forecasting
• The four types of manpower forecasting
• Real-world examples
• How employee scheduling software can help you forecast labor needs
• Labor forecasting made easy with When I Work
• Labor forecasting FAQs

What is labor forecasting?

Labor forecasting involves predicting how many workers you’ll need to staff a future shift. You’ll need to use historical data about past staffing levels and customer demand to determine upcoming labor needs. Forecasting and workforce planning helps you avoid over- or under-scheduling.

There are several ways to forecast your labor needs. One simple approach involves the following formula:

Labor forecast = (Projected sales / sales per hour) x average hourly wage 

This formula helps estimate the number of hours you’ll need to staff based on expected sales and your team’s productivity rate. Labor forecasting is about making the most of your resources while keeping payroll costs down. 

What are the benefits of labor forecasting?

Here’s a glimpse at the benefits your business can unlock by forecasting its labor needs. 

Improved efficiency

Labor forecasting helps you make the most of your available workforce. Let’s say your base schedule calls for the following staffing levels:

• 8 workers for weekday morning shifts
• 8 workers for weekday evening shifts 
• 10 workers for weekend shifts

However, your forecast reveals that the weekday morning shifts have been a lot slower. On the other hand, your weekend shifts have been slammed.

You could use this information for labor demand forecasting. Let’s say your forecast predicts that labor demand will be lower on weekday mornings and higher on Saturdays and Sundays.

Without forecasting, you might just assume you need to hire a couple more weekend workers. In reality, you can avoid the extra payroll expense and simply pull a few people from the slow weekday morning shift. 

Decreased labor costs

Managers and business leaders involved with workforce management often find themselves exploring how to reduce overtime. Labor forecasting is the answer.

Labor forecasting can help you slash labor costs. If you know how many people you need for each shift, you can avoid overstaffing. You’ll also be able to minimize overtime or unplanned staffing expenses. 

Let’s say you have 16 unnecessary labor hours each week due to overstaffing. In this scenario, those workers average about $20 per hour. That means you are taking on $320 per week of unnecessary payroll expenses. Labor cost optimization  could save you thousands of dollars over the course of the year by avoiding this mistake.

Better employee satisfaction

No one wants to work shorthanded. When you don’t put enough people on the schedule, those who are working have to pick up the slack. The extra work can lead to burnout. Labor forecasting helps you achieve staffing optimization and meet labor demand. 

When you accurately predict staffing needs, you can create more consistent schedules for your staff. They will have a good idea of when they will be working. This will lead to better job satisfaction.

Happier customers

Customers are the lifeblood of your business. They expect prompt, friendly service. You need to provide service in accordance with their expectations. Frequent understaffing can delay service and hurt your reputation. A particularly bad experience could even cost you a once loyal customer. 

Your team members will struggle to provide a great experience if they are overloaded with work. Labor forecasting helps ensure the workload is evenly distributed. This means your employees won’t be so overwhelmed and can give each customer the attention they deserve. 

Methods of labor forecasting

There are several ways to forecast your labor needs. Each method has its own advantages. Here’s a look at three popular options you should consider using. 

Historical analysis

One of the simplest methods is historical analytics. You’ll need to look at your past staffing needs during similar times and events to predict future demand. Let’s say your business usually sees a 20% spike in demand during the holiday season. Use this data to figure out how many extra team members you’ll need this year.

Historical analysis is a reliable method, especially if your business experiences seasonal fluctuation. Look back at data from previous years. Use this information to identify trends and adjust your staffing accordingly. 

Delphi method

The Delphi method involves gathering input from key stakeholders or business leaders. Each person can provide unique insights about staffing needs. The goal is to reach a consensus. 

Who should be a part of your panel? That depends on the size and composition of your business. Participants may include department managers, the HR director, and team leads. You’ll want to include people from different levels of the business so you can obtain several perspectives. Each expert should provide their estimates for future labor needs based on their experience. Everyone will get together and discuss their predictions until all of you agree on how to staff the business. 

Market research

Market research involves gathering information about trends in your industry and external factors that might influence your labor needs. Let’s say you own a retail store. You may need to analyze customer spending trends. You could also study how economic conditions are affecting sales.

Doing market research allows you to make more informed decisions about how many employees you’ll need. This is one of the most complex methods of labor forecasting. It can also be invaluable when you work in a dynamic industry. 

Ready to apply these concepts to the way you forecast labor needs and manage your workforce? See how When I Work simplifies labor forecasting. Try it free today. 

The four types of manpower forecasting

There isn’t any universally accepted set of four manpower forecasting methods, but there are some common approaches that emerge, including: 

1. Expert judgment

Someone who knows your business inside and out can estimate future staffing needs. This works well if you are opening a new location or launching new services. 

2. Delphi forecasting

The Delphi method gathers insights from several different methods until a consensus is reached. Incorporating information from multiple stakeholders allows you to reduce individual bias. 

3. Trend analysis forecasting

Trend analysis is a quantitative forecasting method that uses historical workforce and business data to predict future labor demand. 

4. Regression analysis

Regression analysis examines the relationship between business variables, such as sales volume and staffing levels. By identifying these patterns, you can forecast labor requirements more accurately and create schedules accordingly. 

Real-world examples of labor forecasting

The best way to understand labor forecasting is to look at real-world examples. Here are a few practical scenarios that show the value of forecasting labor needs.

Restaurant preps for busy season through labor forecasting

Restaurants are accustomed to seasonal fluctuations. Labor forecasting helps them adapt. Imagine you own a local restaurant. You typically get slammed every December. Based on previous years, you notice that your average daily customer count increases by about 30%. You’ve learned this from tracing past sales and knowing how many people came through the doors in previous years. 

You decide to hire a few extra seasonal staff to prepare for the rush. ou also adjust employees’ schedules to make sure more people are working during peak hours. This means you won’t have to rely on last-minute overtime or risk working short-handed. 

The extra staff gives you the cushion necessary to keep the business running smoothly. Customers are happy. Service is prompt, and your restaurant protects its reputation as the go-to December dining establishment. 

Retail store gears up for a big product launch with labor forecasting

Retail stores can also benefit from labor forecasting. Let’s say you manage a retail store and are about to launch a hot new product. You expect it to bring in a ton of business. However, this isn’t your first product launch.

Being a savvy retail manager, you know that the Delphi Method will be the best forecast model for your business. You meet with key stakeholders, including your sales manager, customer service team leader, and inventory supervisor. Together, the four of you come up with an accurate labor forecast based on past product launches. 

You decide that hiring temporary staff for a one-month rush doesn’t make much sense for your team. Instead, you incorporate some overtime expenses into your budget for the month following the product launch.

You and the other salaried managers adjust your work hours to jump in and help the hourly employees. By budgeting and forecasting labor costs to include some overtime and stepping up as a leader, you set the stage for a successful product launch.

How employee scheduling software can help you forecast labor needs

When I Work employee scheduling software provides a visual breakdown of staffing needs and upcoming schedules. It makes it easy to figure out how many people to put on the schedule. 

Labor forecasting made easy with When I Work

When I Work is jam-packed with handy tools to simplify workforce management. Our team messaging app makes it easy to securely communicate with your team members. The time clock provides a real-time glimpse into current labor expenses based on each person’s hours worked. 

Sign up for a free trial of When I Work. Let our platform simplify labor forecasting so you can keep your business adequately staffed and come through for customers. 

Labor forecasting FAQs

What are the four types of manpower forecasting?

The four primary types of manpower forecasting are demand forecasting, supply forecasting, internal workforce forecasting, and external workforce forecasting. You can use one approach, or a combination of them, to evaluate talent and identify hiring needs. 

How do you forecast labor costs?

You analyze historical payroll data, expected staffing levels, and wage rates to forecast labor costs. You also have to account for benefits, overtime, and projected business demand. One of the simplest ways to forecast labor is to estimate the number of labor hours you need for a project, shift, or workweek. Here’s a basic formula:

Required Labor Hours = Projected Workload/Employee Productivity Rate

If you are performing labor cost forecasting, add this extra step:

Forecasted Labor Cost = Required Labor Hours x Average Hourly Labor Cost

Let’s say a retail store expects $5,000 in sales next Saturday, and historical data shows employees generate $50 in sales per labor hour. In that case, 100 labor hours would be required. If the average fully loaded labor cost is $22 per hour, the labor cost forecast would be:

100 Labor Hours x $22 = $2,200 in labor costs. 

This simple method provides you with a baseline estimate for staffing costs. 

What is a labor forecasting method? 

A labor forecasting method allows you to predict future workforce requirements based on your business objectives, historical performance, and anticipated demand. There are various tools available for labor forecasting, including predictive analytics and workforce management software. 

What is labor supply forecasting?

Labor supply forecasting estimates the number and skills of employees that will be available to meet future workforce needs. It considers factors such as retirements, resignations, promotions, and internal movement.