If all of these indicators are positive, chances are your revenues stand a good chance of increasing and, hopefully, profitability will increase too. In our trade, let’s throw in one more factor: extreme weather. Hot summers and cold winters affect our business more than any other factor does.
OK, we have some pretty good “outside” indicators. How about “inside” indicators? The most telling indicator is the monthly (or in other cases semi-monthly or yearly) profit-and-loss report (P&L). Most of what you need to know is in the P&L report in easy-to-understand, cut-and-dried language.
I don’t have to tell business owners what affects their P&Ls. They already know. Good contractors are keenly aware of their cost of doing business. However, there is another business indicator that speaks volumes by itself — and one that not everyone may use as a gauge.
I’m talking about the sales per employee figure. Simply put, it is a company’s total revenue divided by its number of employees.
In my short time in the hvacr trade, I’ve heard that a good sales-per-employee ratio is around $100,000. If you are a $2 million contractor, you should have around 20 employees. (Does that mean every contractor should use this figure as a guideline? Absol-utely not. But for lack of a better one, let’s use it as an indicator.)
The subject of sales per employee crept under my skin after reading a recent article in Business 2.0 by Kim Cross titled, “Does Your Team Measure Up?” Cross suggested that it is important to track sales per employee in order to become more lean. Cross added, “A steady rise in sales per employee is a sign of improving efficiency.”
I can speak from a little experience when, as a retail clothing store manager, my store topped the $2.1 million sales mark one year. I did it with approximately 12 employees, making my ratio $175,000 per employee.
The Business 2.0 article contained a “Top 25 Sales-Per-Employee Technology Companies” chart, which was published by Standard & Poors. At the top of the list is Priceline.com, with a sales-per-employee figure of $3,312,053.
Yikes. This is an obvious case of comparing apples to oranges, so don’t go out and recalculate your sales per employee figure. But it does point out one thing — that companies are using this data to track productivity and efficiency.
It hardly matters if a company with several thousand employees sees a $1,000 drop per employee. It is probably not even a blip on the radar screen. However, if you are a small- to medium-sized hvacr contractor, that kind of drop is more than a blip.
Take the test yourself. Identify one month that is typically your slow month. You may have a smaller staff during this time of the year. Divide the sales volume that month by your number of employees for that month. Now do the same thing with your busiest month.
If you are doing things right, the average sales per employee should be the same. You’ve adjusted your staff to meet the demand. If the figures are out of whack, that may be a good indicator that it’s time to take a closer look at worker productivity.
Maybe productivity goes up in slow times and down in busy times, or vice versa. You’ll know by looking at your own raw data. Use it as a gauge.
Or ignore it and pray for extreme weather.
Business 2.0 magazine can be reached at www.business2.com (website). Hall is business management editor. He can be reached at 734-542-6214; 734-542-6215 (fax); email@example.com (e-mail).
Publication date: 06/18/2001