Your staff matter. They are the core of your business. And for most companies, they are also one of the two largest business expenses. Staffing costs are a big deal.
Here are nine time-tested, from-the-trenches tips to help you control your staff costs that you won’t learn in business school.
1. Most of your team don’t really understand the “full” amount you are paying them. So twice a year give them a “Full Benefits Report” that lays out their salary, bonuses, employer share of payroll taxes and HR compliance costs, and the dollar value any benefits they receive. You’re not looking for them to be grateful here, you just want them to understand that their real cost to the business is usually 20 percent or more higher than what you directly pay them.
2. Create a culture where compensation is tied to value created for the company, not to time served. One of the advantages you have as a smaller business is you have a great deal of flexibility as to how you compensate your team. One of the biggest mistakes you can make is to tie compensation directly into how long a team member has been on your staff. What must matter is the value they create for your firm, not the length of their tenure.
3. Communicate clearly and far in advance as to progress towards individual and team bonuses. Bonuses and benefits are not “rights” but tied to performance (both individual and company). Any bonus that is regular and expected soon becomes “base”. It’s your job to make sure that your team sees the direct, causal connection between the results they and the company generate and the bonus status they are working towards.
4. For creative and interesting work let intrinsic rewards rule. Be wary of over-incentivizing for specific behaviors. Autonomy, challenge, and pride are multiple more powerful and enduring rewards than an outside piecework bonus structure for expert work. Tread lightly when you are tempted to layer on a bonus structure. Not only will it add a cost to your company that isn’t needed, but often it can undercut productivity.
5. Regularly review your administrative and operational staff levels closely. Most service and administrative departments can be cut by 1 in 4 with no impact on quality of work. Many can handle 1 in 3 cut with no significant negative impact. (See tip 6 below for why this is.) The easiest way to make these “cuts” is to simply hold off on adding new operations or admin staff as your company continues to grow.
6. Stop “make work”. The best way to do that is to have full plates that force staff to prioritize and leave lower level items undone, or done good enough. (Parkinson’s Law). Make it a part of your culture to scrutinize what you do and question, challenge, and eliminate low value outputs. This includes reports that no one actually uses; product or service lines that are low (or even negative margin) that you keep going because you feel you “have to”; etc.
7. Cut wasteful meetings (or at least cut in time and people involved in half). After email, poorly planned and run meetings are the scourge of productivity. Make it clear that every meeting in your company needs three things: a) An agenda laying out the reason for the meeting, what you expect and want to accomplish out of the meeting, and the flow of how the meeting will run; b) A skeptical eye towards who should and should not be at that meeting (you can always send out a recap to keep people in the know); c) A clear leader for that meeting tasked to keep the focus clear and guard against tangential or non-productive behaviors. Yes there are times to have a “free form” meeting, but these are rarer. Most meetings should be run for a clear purpose.
8. Get over your fear of firing people (low performers cost too much to carry.) If 25 years in business and a dozen companies I’ve started and run has taught me anything it’s this: Low performers cost too much to carry. Yes I still hate firing people. No euphemism makes this easier. I’m not “letting them go”, “laying them off”, “downsizing them”, or “helping them pursue career development elsewhere”, I’m firing them. It is hard and emotionally scary and heavy. And it should be. I don’t ever want to be the person who would fire someone without good reason or without deep consideration. That said, low performance levels are a real reason to let someone go. If you’ve coached them, trained them, and given them the opportunities to flourish, but they haven’t made the grade, you need to let them go so that you can find someone else who can give your business the performance it needs.
9. Hire better talent than you think you can afford—use every new hire as an opportunity to upgrade your talent. One “A” player may be worth 1.5-2 “B” players, and 5 or more “C” players, and yet this A player may only cost 10-25 percent more. For example, one of our business coaching clients was hiring a second outside sales person for his service company. He started by looking for a bargain – hiring a sales person at a base of $40-50,000 per year. We pushed him to lift his sights and model his most successful sales person, “Dawn”. We said, “What would it mean for you if you could hire another Dawn? Would it be worth paying $60-75,000 per year as a base if you hired someone with Dawns contacts, sales record, and skills?” For him it was. The result, he made a much stronger sales hire Kelly, who closed $30,000 of new business in her first month on the job, and who went on to great success from there. Hiring is a strategic expense. You’ll almost always do better to have a leaner staff of more talented, capable people whom you pay more, than a bloated staff of “bargains.”
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