Break even – are your employees profitable?
Ever wondered how productive your employees were? Do you know if your employees are profitable? And where is that magic number of break even revenues? How can we use numbers to drive better profits?
Many business owners run their business at the front end – marketing, sales, customer relationships, service….and whilst the back end is where all the costs are (production/admin), the owners I meet are always somewhat vague as to how effective their employee are, and what their true costs to the business is.
First, out of the working year, there are at least 8 weeks of unpaid leave – annual leave, sick leave, parental leave, public holidays and the sleeper of long service leave. And perhaps you employ Gen Y people, who want leave without pay to go on extended holidays, or take leave more than 4 weeks before they have been there for 1 year.
So, out of 365 days in a year, that’s 260 working days (full time), and less than 220 actual days at work. So you have lost 15% already of your effective time.
Over the medium term, no one works 100% of the available hours (except owners who sweat and toil into the night, and before the doors open). So lets say you work at 80% efficiency. Now we are down to 176 days of available work…or 67% of the total work days per year. So to achieve break even revenues for staff, you need revenues to cover your employment costs by at least 150%!
Other than wages and super, then there are other employee costs – training (including more hours/days off work!), tools, amenities, commissions, vehicles or per km costs, and what about staff discounts on products they take home, or family member discounts etc – it’s amazing how if you put ALL the employee related costs into a basket, how much they add up to.
Many of the complications in business come back to numbers. And some of them can be a bit scary. But by truely understanding these numbers, you get the courage and confidence to manage what needs to be managed. And having a reason to manage a key cost, empowers your communication and sets some clear priorities for you. The costs are real, so taking responsibility for the cost is a very important part of being a business owner.
As Business Coach Melbourne, my goal is to simplify how you understand key numbers and together, how you use these magic numbers to drive your business to better profits.