Cost of understaffing

by Kenneth Røsseth-Sørensen, CEO, Retail Insight

What is understaffing and why it happens

Understaffing looks cheap on paper – but hides lost revenue, weakened customer experience and wear and tear on employees. One missing hour at peak can cost more than three hours at the bottom, because lost conversion at peak is never "made up" later. 

Definition: Understaffing occurs when customer demand > available capacity (competent hours). Capacity is not the number of heads, but how many tasks the team can actually solve per hour with the right expertise.

Typical causes:

• Budget cut/flat % norm: "Salary % of turnover" is cut linearly – even if traffic has clear peaks.

• Weak demand forecast: Too rough resolution (day/week) doesn't hit hourly and category patterns.

• Rigid shift template: Fixed templates and breaks that do not move into peak.

• Late recruitment/training: New capacity available only after the season.

• "Lean" that becomes too lean: Lean operation without flex buffer at the top.

Overstaffing is visible in the accounts. Understaffing is invisible – it manifests itself as lost conversion, lower average curve and weaker repurchases. In our previous article on overstaffing, the goal is emphasized: the right employees at the right time – not the most or the fewest hours. The same principle ensures that understaffing doesn't eat up the tops.

The hidden costs of understaffing

• Lost revenue: When queues/waiting times pass thresholds (e.g. 2-3 minutes at checkout, 30-60 seconds for help on the floor), CR (conversion rate) and ATV (average transaction value) drop. The effect is not linear: small delays have little cost – but past the threshold, sales plummet.

• Customer satisfaction and CLV: The annual experience makes customers more price sensitive, increases churn and lowers CLV (Customer Lifetime Value). A single bad peak hour can affect the choice of chain for months.

• Mistakes and waste: Haste results in more wrong picks, unmanned shelves and "empty gold" in campaigns. Goods are left on pallets, not on shelves.

• Employee attrition: Long-term stress increases sick leave, The cost lies in recruitment, training and lost productivity from juniors.

• Operational risk: When "everyone is running the box", security, compliance and the flow of goods are missing. The risk is small per hour, but high when it hits.

How to measure understaffing in practice

Capacity Formula: Capacity per hour = Σ(active employees × task rate) – examples of task rates: dispatches/hour, picking/hour, checkout scan/hour.

Crew gap: Staffing gap (%) = (Demand – Capacity) / Demand.

Lost sales per hour: Lost sale (hour h) ≈ Visitor × (CR_baseline – CR_observerd) × Average transaction value.

Example (1 hour)

• Visits: 300

• Baseline conversion rate: 35%

• Observed conversion rate: 30%

• Average basket: NOK 420

• Lost sales: ≈ 300 × (0.35 – 0.30) × 420 = 300 × 0.05 × 420 = NOK 6,300

5 percentage‑point lower conversion in a peak hour costs about NOK 6,300.

Leading indicators:

• Unusually high OPAT (turnover per employee hour) at the same time as queues – typically at peak.

• Abrupt drop in Conversion Rate at certain queue lengths or waiting times.

• Fall in Goods Per Transaction and satisfaction (NPS/CSAT) at the top.

Warning lights in operation

• Breaks are moved ad hoc to "keep your head above water".

• Replenishment and price adjustments are postponed.

• More people are "leaving the store without a purchase".

From gut feeling to prediction – how to solve it

• Demand-driven planning: Hourly and visit /sales category forecasts (not just daily levels).

• Dynamic shift scheduling: Move timer to the top and add flex buffer (30-60 min) to take deviations.

• Cross-competence: Team that can quickly switch between checkout, floor, replenishment and preparation.

• Micro goals

  • Service level: proportion of peak minutes with no positive staffing gap.

  • Set a clear limit for how long customers should wait — tailored to each store type

  • Planned vs. actually staffed competence hours.

Weekly review (8-12 weeks ahead)
A simple dashboard with visits vs. staffing vs. conversion and deviations. Learn from last week – correct the next one.

The equilibrium point ("Goldilocks staffing")

The goal is that every hour provides meaningful value: the peaks are covered without "blowing" bottom. It's about the right hours – not the most hours. This is the same equilibrium logic as addressed in the piece on overstaffing – and here applied to avoid lost sales at peak.

How Retail Insight Helps

Prediction: AI-powered scheduling aligned with traffic and sales forecasts.

Analytics: Identify where stores are overstaffed or understaffed in real time.

Performance: Empower managers with clear insights to adjust and optimize.

Cuts in labour costs can improve a CPI, but weaken value creation. Understaffing is a hidden debt in lost peak hours. When you move minutes into peak instead of cutting them flat, you get higher conversions, better customer experiences, and lower turnover – without increasing overall cost. This is what profitable growth looks like in retail.

Watch ROI live: Run a pilot in 3 stores for 12 weeks. Measure before/after on CR, AOV, OPAT, queue time and sick leave.

Maximize OPAT without lost sales. Switch from gut feeling to predictive staffing —demand-driven planning, dynamic shift, and confidence-boosting micro-goals.

Contact support@retailinsight.no or click Book Demo to uncover the real cost of understaffing in your stores.

Article by Kenneth Røsseth-Sørensen, CEO, Retail Insight