Payroll is Your Biggest Controllable Expense
Payroll & Employees are your Greatest Asset and Expense
In today’s episode: We discuss the impact payroll has on your bottom line. Since your payroll is your biggest controllable expense it is important to know the proper ways to reduce your payroll costs. It IS NOT to cut wages. The key is the 80% of productivity you are getting out of them!
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Episode 65: Payroll is Your Biggest Controllable Expense
Welcome back to the Local Small Business Coach Podcast. I am your coach, Tammy Adams.
Today we are going to take a look at the impact having too much staff has on your bottom line.
Hey small business owners, welcome back to the show. As a business owner, you are always looking for ways to control your expenses. After all, profits are the name of the game and you don’t want to give away those profits by having high expenses.
So today, I want to talk about your single largest controllable expense in your business and that is your employee payroll.
Before I dive in, don't get me wrong, you want to hire great people and you want to pay them well. So please do not misunderstand what I’m about discuss. The problem is, there is a lot of wasted payroll due having too many employees to cover the lack of training, the lack of accountability and the lack of direction. All three of which, often causes a business owner to hire more people than what they actually need.
You see, statistics show, that most employees are working at an 80% productivity rate. Which means that most employers are over hiring to make up the remaining 20%. So why do we accept people working at 80% capacity? Why don’t we push for 90% – 95%?
If you think about it, just to make up the difference between this 80% and the 90% you are probably running your payroll over 10% at minimum but odds are possibly even 15%.
TRY THIS EXERCISE
I want to do an exercise with you. If you don’t have any team members, just hang tight for a few minutes.
Those of you with a team, I want you to think about your team members. Start naming them off in your head. Go ahead, see how you do…. I’ll give you a few seconds….do do do do do do do do do do do do do do do….
I’m going to bet that the first person that came to mind was your superstars, then your performance issues and then you had to pause. You had to take a few moments to think of the others. It’s ok, it doesn’t mean you don’t love them it just means they are average. They are the ones that are giving you the 80% day in and day out. Good, solid, average people.
You see, we tend to remember those that bust their butt for us, and the ones that we must constantly stay on top off. It is easy to identify those poor performers and replace them, but that isn’t your problem. Your wasted payroll actually comes from that middle group.
HOW MUCH PAYROLL CAN YOU SAVE?
Think about how productive your team would be if you could elevate the performance? Think about how much leaner you could be if these folks were giving you the 90% – 95% I mentioned earlier.
Could you go from 10 members down to 9? Heck, one person would make a huge difference. Think about a person who is 20 hours a week at $8 is $160 a week or over $8,000 a year!
If you had the remaining 9 folks working at 90% that would easily offset the loss of the person.
Remember, I’m not asking you to fire a person just for firing them. It might be that you don’t replace a person when you naturally use them through attrition. Say they leave for other reasons, just don’t be quick to replace if they truly aren’t needed. Hold accountable the poor performers and help promote them from employee to customer.
WHAT IF YOU WANT TO GROW YOUR BUSINESS?
Now, here is the crazy thing. If you started to hold your folks to a higher standard and get them up to the 90% productivity, what do you think would happen?
Something crazy. Not only do you have the potential to save on payroll, but an even bigger reward can happen. YOUR SALES GO UP!
Yes, the crazy thing is, you gain in sales and since you can make more sales happen with the same or less payroll, YOUR PROFITS ALSO GO UP!
On the subject of increasing your sales, what if you want to invest more payroll in anticipation of boosting your sales? I’m not going to tell you not to hire for this, however, I am going to challenge you to have a plan on how you will use this payroll and what your return on the investment will be.
Here is the thing, if the sales don’t come, then you are right back in the boat of this over inflated payroll line killing your profits. So, you will want to have a set amount in sales you expect achieve and a deadline for when you will adjust your payroll if it doesn’t pan out.
LET’S TALK ABOUT WAGES – MINIMUM WAGE IS A KILLER
I want to take a few moments to talk about wages. I know when we think about cutting payroll, the first thing that comes to mind is what we pay our people. Let’s face it, the continual growth of minimum wage is impacting local small business owners in a big way.
While we all can appreciate what the government is trying to do with helping people have a livable wage, they are also killing local small business owners. Each January, even if you do not hire a single person, your payroll is growing with these wage jumps.
So, what is a local small business owner to do?
Well, obviously, you must comply. That isn’t an option. The challenge becomes getting more for your money. Even more reason why you need to ensure your team’s productivity is high. That you are hiring the right people and that you are clear on expectations and accountability.
You must keep in mind, that even if you were to pay your folks $20 an hour, that is fine as long as you are getting $20 an hour of productivity and value out of them.
A VW BUG VS A CADILLAC – You Get What You Pay For
Think about two cars. On one hand, you have a VW Bug and on the other hand you have a Cadillac. Both cars will get you from point A to point B. So why are we willing to pay so much more for the Cadillac?
Some of it is name brand but it is also for quality, the upgrades and the performance you get. You expect a lot more from the Cadillac for your money. Just like you need to expect more from your higher paid employees.
If someone deserves to be paid a high amount, by all means do it! Reward for performance. Set those high expectations and hold them to it. Hell, give me a high paid, high performing team any day. If they are worth it, then I will ultimately be the winner. Heck, my business, my customers, we all will be winners.
WRAP UP – Payroll & Employees are your Greatest Asset and Expense
So, as we bring this episode to a close, remember, your payroll and your employees are both your greatest asset and your greatest expense.
If used correctly, you can add lots of profit to your bottom line. You do this by ensuring you have a high-performing team that you can run lean enough to execute the job needed. You want just enough employees to cover your schedule and get the work done.
You want these folks working at 90% – 95% capacity. Pay these folks for their great job. But don’t let them skate through being average. Push them to be high achievers. Grow those sales and more importantly, grow those profits!
Don’t be one of the businesses that wastes money on their payroll. Push you team. Hire the best, train them and hold them accountable to expectations.
And as we wrap up this episode I want you to know, that I realize being a local small business owner can be a lonely gig at times. But you don’t have to do it alone. Just know, I’m always here for you.
By the way, If you like what we are taking about, then make sure to subscribe to the podcast so you don’t miss an episode, if you love the podcast and what we are talking about, then please leave a 5 star review so other local small business owners know this is a podcast that they can’t miss.
And don’t forget to visit the website at LocalSmallBusinessCoach.com to leave your question for me to possibly answer on the podcast in the future. You can leave it via the Speakpipe button or just shoot me an email.
Meanwhile, I wish you the best in your business and remember: Great Customer Service, coupled with Great business practices will set you on the path to Great Profits!
Bye for now…..
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Today's episode, as well as all of our episodes, is brought to you by trainingforlocalsmallbusinessowners.com. Where we provide free tips, tools and resources for your local small business. So whether you are just starting out or you've been in business for a while and want to learn more ways to increase your profit, boost your sales, improve your processes and develop stronger teams then head on over once again to trainingforlocalsmallbusinessowners.com..
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See you on the next episode!
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