Companies post “This is a great place to work” and brag about their employees’ longevity. More times than not,
EMPLOYEE LONGEVITY IS THE GREATEST PROFIT KILLER FOR SMALL & MID-SIZE BUSINESSES!
Why? Simple example- Employees have come to expect annual Cost of Living wage increases. Over a period of 3-4 years these increases may eclipse efficiency gains from that employee. Think how much it costs the business over 5, 10, 15 years.
SOLUTION: make time to track this one metric monthly (see example below):
Sales per Employee
When Sales per Employee increases, your margins are growing, when it decreases your margins are shrinking.
What is Sales per Employee: Total Sales divided by number of Equivalent Full-time Employees. It’s an analytical measure of how productively a company is able to utilize its employees to contribute to its business growth. Technology companies generally have higher ratios that Labor-intensive companies. Therefore the ratios are most useful when compared to the performance of companies within an industry.
Major restructuring and large staff reductions as we have seen with the pandemic will significantly impact the ratio temporarily, so it must be viewed over the longer term.
The ideal is to create an environment where sales-per-employee steadily rises. It’s not as difficult as it sounds, we have helped numerous companies find consistent ways to improve.
A company that consistently generates rising sales with a stable or shrinking workforce can usually boost profits more rapidly than one that can’t make additional sales without adding more workers.
