Employees Don’t Have to Be an Expense

I’ve had three conversations with business owners in the last week where the fear of hiring a much-needed employee came down to one thing – not wanting to add another expense.  While payroll is obviously an overhead expense on the P&L, employees should be considered an investment, not an expense.  Here is what we discussed that convinced them to invest in new team members.

Some roles in a business are obvious investments, with an obvious payback in either sales or productivity.  Hiring for other roles is not always as obvious, so let’s look at the different types of employee additions to your team.

Production Employees

Production employees, whether in a manufacturing environment or professional provider (doctor or lawyer for example), are pretty obviously going to provide you with more production capacity.  To make sure they are an investment, and not just another expense, make sure that you allocate the sales, marketing and budget to fill up the new capacity you have added.  They only become an expense if you fail to increase the demand for your services to match the increase in supply you have created.

Sales Employees

Adding to your sales team often seems like an expense, yet it is easy to turn it into an investment.  The best way to do this is to manage your sales team with Key Performance Indicators (KPIs) that you measure and report on every day and week.  Do you know how much a new salesperson must sell in order to generate the profit required to cover their employment costs?  Do you have a target for profitability for each salesperson on your team?  Too often we set sales targets without considering the profit from those sales, so I recommend setting profit targets for commission/bonus, not sales targets.  I want my sales people to be the highest paid members of my team, and they do this by generating profitable sales that we measure and then reward them for.

Support Employees

The hardest employees for owners to consider an investment is the office or support team member, one that neither directly generates revenue or acquires new customers.  Despite the belief that these “administrative” employees are simply overhead, the first thing to do is to make a list of all of the things you are doing personally that someone else can do.  How many hours per day or week are you doing $20/hour work instead of $250 or $500/hr work?  With the right hiring and training plan, how many hours could you free up?  In a 40 hour work week, just 2-4 hours of your time doing work at your hourly rate more than covers the cost and typically generates profit – becoming one of the best investments you ever made!

The Key for All 3

For all three types of employees, the key is having a good training plan and individual metrics/KPIs that emphasize either direct productivity or indirect productivity (freeing up productive time for a higher billing rate employee).  All it takes is some simple planning and an investment mindset.

If you’d like some help figuring out how to attract good team members and accelerating their Return on Investment, contact me and we can schedule an investment discussion to get you started.

Author: Mark McNulty, Business Coach in Louisville, KY

Employees Don’t Have to Be an Expense