Putting A Value On Your People
This isn’t about motivation or how to retain
staff. This is about profit and loss.
People cost money to pay, so when your company is
quoting for business, you need to take that into account. Having the lowest price may win you the
contract, but if you lose money because it doesn't cover your staff costs (let
alone other overheads), you might as well not bother. Yet a number of businesses may be guilty of
exactly this.
How do you calculate the value of your people? Here’s a good and quick calculation by a chap
whom I follow by the name of Michael Heppell, with additions from my own
experience.
- First, take the gross annual salary that you pay that person.
- Now, add back any pension contributions and health insurance contributions you may have to make.
- This gives you their total cost to your company per year.
- Divide this by the number of available working days in the year (on average 220, once you take weekends, public holidays and annual leave days into account). This gives their cost per available working day.
- Divide by the answer to the above by 8 (average working hours in average day).
- Multiply the answer to the above by 2 (usually only half of working hours are “mission critical” hours).
- That’s what they’re worth per hour.
Business owners often forget the difference between the cost per available working day and the cost per day of people. This is why they get their sums wrong and end up losing money (or not making enough).
In some countries, people may work weekends or
half-Saturdays, whilst in others, the law mandates a certain number of rest
days for every day worked. You’ll need
to adjust this for your circumstances.
Once you understand the above, it’s easy to work out
the cost for every one of your staff on a daily and hourly basis (it can be
done on an EXCEL spread sheet). You then
work out how many hours or days a particular job requires, which people are
required for it and do the math. You
then have your “baseline cost’’ for staff input, to which you add other costs
such as equipment hire, warehouse rental or legal costs to arrive at a final
figure for the contract.
After that, it’s up to you to work out whether you can
do the work for less but still charge the same, or whether you’ll have to
reduce other costs to win the contract.
Whatever happens, you know what it’ll cost you and
whether it’s worth pursuing.
I have spent more than
half my life delivering change in different world markets from the most
developed to “emerging” economies. With more than 20 years in international
financial services around the world
running different operations and lending businesses, I started my own
Consultancy to offer solutions for improving performance, productivity and risk
management. I work with individuals,
small businesses, charities, quoted companies and academic institutions across
the world. An international speaker, trainer, author and fund-raiser, I can be
contacted by email . My website provides a full picture of my portfolio of
services. For strategic questions that
you should be asking yourself, follow me at @wkm610.
Labels: Financial, Selling, Strategy
posted by William Martin @ 11:09
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home