Sep 01, 2016

The Profitability of Performance

Implementing benchmarking to get employees invested in company goals

The average worker stays at a job for an average of 4.4 years, according to the most recent data available from the U.S. Bureau of Labor Statistics. Millennials expect to stay in a job for less than three years. Here at Applied Management Group Inc. (AMG), we have found that millennials want to feel fulfilled. They want to be part of a team and receive the training they need to grow and prosper both personally and professionally. If those desires are not met, their time at a job could be cut in half.

There are ways to get your employees involved in the vision of your business­, and give them the responsibility and authority to excel in their jobs and at customer service. If you already have implemented burdened labor costing and defined processes and procedures for your business, your employees are empowered to provide excellent customer service.

The Cost of an Employee

Your business has grown and developed so it works with and for its employees. The business from the top down has created an empowered employee environment. This also has financial implications for the business.

Every minute of every day, you are either generating or eliminating revenue, and there are always costs involved. If you have complete visibility of what those costs are, you can manage and control them. The WQP article “Service Department Profitability” (February 2015) reviewed burdened labor costing, which calculates how much each direct labor employee costs your business each hour in a day. Having this number allows you to create your:

  • Retail hourly rate: the amount to charge for your profit margin percentage;
  • Break-even hours: the number of billed hours needed to break even; and
  • Cost per day: the total amount each employee costs the company per workday.

Take that one step further by informing employees how much they cost the company. Ask them, “Considering your current wage, how much do you think you cost the company for one hour of the day?” As you can imagine, the answers will be all over the board. Just like owners and managers may not have known the true cost of an employee prior to doing burdened labor costing, employees also do not know. They truly believe the number they are guessing is correct. At a recent AMG training, one employee stated he was paid $15 per hour and believed he costs the company $25 per hour, maximum. He actually cost the company $67 per hour. This comes out to $536 per day and $2,680 per week. 

Initially it was shocking to the employee, but he came to understand that the costs involved include multiple other benefits and expenses paid by the company, not just his hourly wage and taxes.

Weighing Employee Value

Employees take pride in what they do. They want to make the company money and help grow the business. They do not want another department to pick up the tab for them. As owners or managers, implementing benchmarking can help you get your employees involved to ensure they are able to reach
their goals.

Per BusinessDictionary.com, “benchmarking is a measurement of quality of an organization’s policies, products, programs, strategies, etc., and [its] comparison with standard measurements, or similar measurements of its peers.” We define it as “deciding at what level you want your company and people to perform.” Benchmarking aims to find examples of superior performance and understand the processes and procedures driving that performance. 

The WQP article “Employee Empowerment Pays Off” (June 2016) describes the development of those processes and procedures. Without processes and procedures for setting guidelines and expectations for your employees, you will not have a basis for your benchmarks. 

Defining processes and procedures and completing burdened labor costing provide the foundation to create benchmarks specific to your business and employees.

Putting Benchmarks to the Test

Benchmarking is invaluable in a business’s quest for continuous improvement.

When benchmarking, remember that how you measure is as important as what you measure. If you are benchmarking whether each direct employee is paying for him- or herself, your evaluation must be equal for all employees. AMG has created a labor efficiency tool that allows you to enter an employee’s burdened labor cost to calculate whether he or she is paying for him- or herself based on specific numbers. Now you can set benchmarks for that employee. Is he or she generating or eliminating revenue for your business? If he or she is generating revenue, you can provide rewards based on performance.

Generating or eliminating revenue is all-encompassing. This includes indirect employees, because they too need to be held accountable and shown how their actions affect the business. They need benchmarks. They are critical to providing your vision of an outstanding customer service experience to internal and external customers. 

Create a vision, and align your processes and procedures with it. Create an open line of communication to support them, and customers will see that effort toward exceptionalism. 

About the author

Kelcey Thompson is vice president of Applied Management Group Inc. Thompson can be reached at [email protected] or 262.697.4470.

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