Sunday, October 31, 2004

Is your company over staffed?
With Gina Bienkowski

Q. Our payroll expense seems to be getting out of hand. How do we know when we have the right number of people?

A. It’s easy to add bodies to a problem, especially when the company is growing. The easiest way to be sure you don’t over staff is to monitor your revenue per employee. This is a simple calculation that looks at the productivity of your staff. Start by calculating the number of “full-time equivalent employees” working for you. To do this, add the number of hours worked by all part-timers in one week and divide this number by 40. Then, add that number to the number of full-time employees that you have. The total is the number of full-time equivalent employees.

The next step is to divide twelve months’ of Net Revenue by the number of full-time equivalent employees. The answer is your revenue per employee. I like to see a minimum revenue range between $115,000 and $145,000, depending on the company’s product mix. If you have a strong rental base, your target revenue per employee should be at the high end. Otherwise, you might be at the low or middle area of the range.

If your Revenue Per Employee is lower than $115,000, it indicates that, by industry standards, you are over staffed and need to reduce your head count. The ratio doesn’t tell you where the extra people are, but looking at the payroll run should quickly provide the answer. Look at each department separately. Consider shifting people around. And, remember, if you have to let someone go, be sure they are your weakest link.

Contact Gina Bienkowski, v.p.. of Ultimate Resource at 610-353-1321.