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Manage Your Productivity

Last part of three-part series: Want to be in the Top 25% for profitability? increase your sales per employee.

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FOR THE LAST several months, I’ve been sharing some of the key findings from the latest FIT Performance Group Study. Each year, we take the financial statements of our FIT performance group members (and Profit Mastery workshop attendees) and sort them, top to bottom, by how much owner’s discretionary profit, or ODP*, they make as a percentage of sales.

We take this top quartile and label them the “Top 25%.” While there was not one single thing that led to a company making the Top 25%, a big factor was how efficiently they managed their cost of goods sold and all other expenses.

Another factor was how efficiently they managed productivity to get the most from their inventory, their staff, and their facilities. Last month, I talked about some of the key differences that drive a more productive inventory. This month, I’d like to talk about employee productivity.

Optimum staff productivity is the result of efficient staff cost control, balanced with effective results. Staff costs per employee, or as a percentage of sales, are benchmarks for measuring cost control or efficiency. Sales per employee is a benchmark for measuring the effectiveness of staff efforts.

[inset side=right]Optimum staff productivity is the result of efficient staff cost control, balanced with effective results. [/inset]This year, the Top 25% scored a huge 27 percent increase in sales per employee over last year (versus 7 percent for all companies in our FIT groups). Besides a larger increase in sales per employee from the prior year, the Top 25% produced 21 percent more in sales for each employee than the median (or half-way point) for all companies ($302,715 compared to $250,651 for all companies.)

So the Top 25% were more effective, as measured by sales per employee. What did this effectiveness cost them? Slightly more as measured in median staff costs per employee in dollars: $49,763. This compares to a median staff cost per employee of $45,268 for all companies. However, staff cost as a percentage of sales for the Top 25% was 2.8 percent lower than all companies (12.5 percent compared to 15.3 percent for all companies).

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Although the dollars paid were larger, because their sales were higher than all companies the percentages came out smaller. The percentage savings also stem from having fewer, more productive employees who produce more sales, allowing owners to better compensate staff for their efforts. Effective hiring, scheduling, and retention can contribute to staff productivity and can help control staff costs.

What else drives the higher productivity of the Top 25%?

Like the other key performance benchmarks I’ve reviewed in this series, FIT members must set annual goals for sales per employee. Each quarter, their actual performance is benchmarked against their goal and the results of the Top 25% from the prior year. If they are lagging, there is usually a “sales per employee” superstar in the group who is willing to share best practices with them.

They know the characteristics of a top salesperson, and hire for those qualities, often using pre-employment testing.

[inset side=left]The Top 25% have higher expectations of their staff.[/inset]The Top 25% have higher expectations of their staff. If, after proper training and coaching, an employee is not performing up to expectations, they “set them free” to find other uses for their talents.

Anecdotally, it seems that the Top 25% invest more in ongoing sales-training dollars. I’m going to test this hypothesis in next year’s study by asking participants to report how much in sales-training dollars they spent in the prior year to find out for sure what the correlation is.

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*ODP is defined as net profit before tax plus owner compensation, divided by sales. This measures the profit of the business before the owner decides how much compensation to take out — a lot or a little.

Get a free copy of our FIT Jewelers’ 2007 Financial Benchmarking Study by e-mailing me at [email protected].

This story is from the September 2008 edition of INSTORE.

Laurie Owen was INSTORE's financial columnist during the first decade of the publication's history.

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