Staff: Cost Centre or Profit Generator?

How do you turn your biggest cost into your biggest profit generator?

Staff are one of the biggest costs in your business. If you spent that much money on an asset, you’d make a business case and analyse the return on investment before you purchased it. And then you’d check up on its performance at regular intervals.

But we often fail to view our staff as an ‘investment’ at all and instead treat them as an ‘overhead’. Once hired, little may be done in the way of training, developing and stretching employees’ abilities.

Your attitude towards how you view your staff base will impact how they perform.

To make the most out of your staff assets, and turn them into a source of profit rather than simply cost, a few steps are needed (none of which involves setting up a monthly bar tab).

Investing in your team is one of the most profit-generating activities you can do as a business.

1) Put money into your Payroll budget

Hire top quality staff. They cost more, but they are more efficient, achieve more, get things right first time, and have great ideas.

The toll on a business from low grade staff is immense, whether through errors, slowness, missed opportunities, or by frustrating the higher-quality staff to the point where the higher-quality staff leave. The phrase ‘pay peanuts, get monkeys’ is rooted in truth. No real-life monkey has ever produced the works of Shakespeare on a typewriter. Don’t make a false economy by hiring low-level staff.

2) Recognise your staff as an investment from Day 1

An employee is not just valuable because of what they can deliver in the future. Each employee who joins your business has already got a significant price tag attached to them, on top of the rolling payroll expense. The one-off cost is built up of:

• Recruitment fees
• Internal time spent on job specs, screening CVS and interviewing
• Training time & costs
• Possibly an interim employee providing cover whilst the new head is hired

The total cost to bring a new head on board is far higher than their annual wage. So, with a big investment already made in each employee from Day 1, you need to make sure they feel valued from the start.

3) Remember that the value your staff bring is not just financial

You’ve hired great, high quality, staff who are now delivering sales targets, achieving cost savings and generally driving your business in the right direction.

If you’ve got the hiring process sorted, you might feel confident that replacing a leaver will be straightforward, albeit with a hit to the recruitment budget.

Think again. In addition to repeating the recruitment costs, a leaver also takes with them:

• Knowledge of the business – leaving a knowledge gap which can cause issues if handovers are not thorough
• Skills built up at the business – you lose both the skills they brought to the job AND the skills they gained ON the job, which may mean you have to incur more training costs to bring a new head up to speed.
• A chunk of staff morale -if everyone around you is leaving, wouldn’t you wonder why? You don’t want 1 leaver to multiply into 2, 3 or more leavers.
• Brand advocacy – depending on the circumstances, a great person leaving your business might cast doubt over your business’ future. Alternatively, it might portray your business as an excellent training ground and encourage new joiners, but you might not be able to control the opinions out there.

As you can see, high attrition rates cost a business in many more ways than through recruitment fees.
If it takes a couple of months to get a new employee fully up to speed, your business’ growth progress will be seriously impeded each time a valuable member of staff leaves.

4) Actively create a great place to work

An interview works both ways. The candidate is being assessed on their ability to do the job, but the business is also being appraised by the candidate – do they want to work there?

Once a job offer is accepted, the employer still has to work at retaining their staff, or staff will seek a better option elsewhere.

To retain your staff and get the best out of them, you need to create a great working environment.

• Invest in learning & development
• Create an open culture where employees feel valued
• Celebrate success
• Set up a feedback and review process, focussed on developing staff & creating future opportunities rather than pointing the finger at errors and weaknesses
• Reward staff fairly
• Have a purpose your staff buy into

Money is rarely the main factor when a member of staff decides to leave a business. It is more frequently due to a bad working relationship, often with a boss, or a lack of career advancement.
The investment you need to focus on for your staff is around their working environment and culture, rather than a pure monetary investment to increase salaries.

CFO: What happens if we train them and they leave?
CEO: What happens if we don’t and they stay?

Your business is entirely dependent on your staff. This is abundantly clear for professional service companies who have consultants; but equally true for product and manufacturing businesses.

All decisions are made by people. Even if machines can produce your goods, people have to load and unload them, package them, put them in the post. Errors cost money. Having good staff who do the job well keeps your bottom line from being hit with costly corrections.

And having great staff… well, these are the ones who have ideas. Who you can leave to run a project and trust them to do it well. Who free up your time and that of others. Who think of better ways to do things.

Your staff are your business. Hire the best you can and treat them as well as you can, and your business will profit many times more than the value of your staff investment.