We all want to make sure our business gets the most productivity for every dollar we spend on labor. What does this mean exactly? Let me paint a picture for you.
Your business is starting to grow, you have a few employees but your gross profit isn’t growing. It’s time to step back for a second and take a look around.
- Don’t hire an employee for a job you can do.
- Don’t add additional labor until an increase in gross profit can provide for added labor. If you add on more labor too soon pretax profits can slip below the 10 percent mark and the company can be in trouble.
To find out what your labor productivity is –
Gross Profit and divide it by your Labor Cost
300,000 / 80,000 = $3.75
This will help you focus on your gross profit per labor dollar as the key indicator.
Find ways to increase every dollar of labor spend:
- Have employee evaluations multiple times per year
- Focus on gross profit per labor dollar as key indicator for labor productivity
- Don’t make the mistake of adding labor to make a company grow
- Don’t hire an employee for a function you can do
What is your labor cost? What are you going to do differently going forward?