How much do employees contribute to business revenue (and why should you care?)
What is the value of your employees’ time? It seems like a simple question — until you have to equate what each employee contributes to your bottom line.
It’s easy to define the value of sales team members — just weigh up the value of sales they’ve made for your business against the costs of employing them.
But what about the rest of your team? Arguably they contribute just as much to your revenue-generating activities as the sales staff. Without the production and warehouse team, your sales team has no product to sell.
So how do you evaluate their contribution? And why does it matter?
Let’s start by outlining a five-step process for refining job descriptions and key performance indicators.
1. Clarify each role description and key accountabilities
Unless you and your team members have identified and agreed upon who is responsible and accountable for what, it will be difficult to ensure expectations are met. Considerations for this step include:
- List the duties, task or areas of responsibility that are required to be regularly carried out by the team member.
- Exclude duties that account for less than 5 percent of the work, unless critically important.
- Present duties in a logical order, such as the sequence in which they are performed, their relative importance, or the percentage of time spent on each task.
- Include information regarding the frequency of the task and/or the percentage of time spent performing the task.
2. Identify the skills, education and experience required to deliver results
Figure out how each person you add to your team will assist you in achieving your business strategy. Out of that will drop the prerequisite skills needed.
For existing team members, you may find you need a training program to bring them up to speed. For new people, you’ll be more focused in finding the experience you need to improve your team’s contribution.
- Indicate why each specification is required to perform the job and how it is normally acquired. Relate it to what, how and why the job is done. For example, a team member leading your finance team must have the ability to read and comprehend a balance sheet in order to identify possible profitability concerns.
- State specifications in terms of the minimum requirements necessary to perform the job.
- Be specific and realistic.
- Do not consider the particular education, experience or skill level of current team members; think only in terms of what the job requires.
3. Reinforce links to business strategy through goal setting
Unless you have a strategy for your business, you will have difficulty determining what tasks should be undertaken to achieve it!
In order to link strategy to individual effort, you must first answer these two questions:
- What are you trying to achieve, change or improve?
- What behaviour is required to bring about that achievement, change or improvement?
For example, imagine an accounting firm that aims to increase revenue growth by adding business coaching to their client service offering. It has designated a partner to lead this new line of business and recently hired a senior manager who will be dedicated to growing this business.
The behaviours required to bring about that change might include:
- Marketing: Delivers one value-added event/marketing initiative per quarter
- Client contact: Meets with 100 percent of identified key clients to discuss business coaching services within first six months
- Cross-functional skill development: Develops introductory training workshop and delivers to non-consulting members of the professional team
- Financial management (Finance): Delivers all projects on budget
4. Align goals and select KPIs
Once high-level business goals are set in the strategic planning phase, senior leaders are able to identify how their role contributes to the achievement of those goals, along with the KPIs by which they will be measured.
These goals and measures are then cascaded to direct reports and so on. The combined result should be a set of integrated goals and associated KPIs that combine to deliver the desired organisation goals.
5. Review goals to ensure they are SMART
Goals should pass the following tests:
- Specific: You can describe the important details of the goal
- Measurable: You have the systems and processes in place to measure results
- Attainable: The goal can be achieved by the employee
- Realistic: The goal is realistic, taking into account available time, resources and constraints
- Time limited: There is a reasonable limit to the time allowed for achievement
Once you have this process in place, you will be much more aware of how each team member is contributing to your business’s success.
Quantifying the contribution
To quantify each team member’s contribution, you could look at it a number of ways.
For example, you might look at a $100 sale like this. (This an example only, so the numbers will be different for every business. If you want to go down this path, speak with your accountant about an activity-based costing review.)
|Finance and admin||10|
Armed with such information, you could then make a judgement as to each person’s contribution towards your business’s revenue and profitability and then compare that to the salary or wages you pay to them.
A note of caution: don’t go overboard with this, but do have a think about it as it might help you get clearer on how each person plays a part.
If you do want to crunch some numbers on this, MYOB has a neat Value of Time Tool that you can access for free.
It’s clearly important to assess how each of your team members contributes to your business — after all, if they don’t, they shouldn’t be there.
Implementing regular reviews gives you clarity around how to measure their contribution, which will help you make better judgements on how to reward your team appropriately.