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Making money from employing people: Labour Services businesses

labour costs - business success

So, you’ve made a great start in your new business, and started to employ people. But you’re making no more money than you were before, and finding that people just don’t get it right, no matter how many times you tell them something. Sound familiar?

Rest assured, you are not alone. Making the leap from being a sole operator, to a small business, is one of the big hard steps in building a successful and sustainable business. Getting other people to replicate what you’re great at, in a way that makes you money, is neither simple nor easy.  That goes double when it’s a labour services business – think trades (sparky, plumber, handyman), or creative (websites, digital marketing, architecture), or professional services (accountants, lawyers).  Essentially you are selling your employees time, with maybe some add-on product as well. Obviously, you need to get quality work from them, at a good level of productivity.  

But making money from people is more complicated than that. There are actually 4 key things that have to work synergistically, and in equilibrium:

Failure to get any one quadrant right, or if there’s a mismatch between any – and you’ll be lucky to make money on your people.  Let’s look at each area briefly:

  1. Sales results must match Labour Capacity

This is one of the most common mistakes both new and older businesses make.  They haven’t worked out what level of sales they should be able to service, with the labour they have on hand. It’s shocked me how big the mismatch can be. I’ve seen a couple of businesses that should have been getting 70% more billing from the number of people they had. They weren’t even aware of how far out of kilter they were, they just knew they weren’t making money. Allocating the right amount of activity, time and money to sales is critical, and getting a return on that time and money is equally critical. Many businesses get both halves on that equation wrong.

  1. Pricing must include a Gross Margin that leaves Nett Profits  

Seems obvious – doesn’t it?  Yet so many businesses undervalue what they do, perceive a higher level of price competition than is actually the case, or just plain underquote.  Worse than that, they chase customers who will always be lower margin and harder to service, simply because they are the ones who they can find easily. Making considered choices about who to target, and patiently doing the hard grind to sign, is critical to long term profitability. These customers will value what you do and be happy to pay a fair price that achieves the requisite gross margin.

  1. Labour must be both highly productive and high quality

This is entry card stuff – getting the right people and managing them in a way that results in efficient high-quality work is a requirement, not an option.  Some employers can find good people, but few have a structured consistent approach to getting the best out of them. 

  1. Systems must reduce errors and support efficiency

This is another area that few businesses get right, particularly as they grow. Labour Service businesses must have user friendly software that tracks the time of their billable employees.  This inherently brings a focus on productivity on an hourly basis and gives precious data on which to identify problems and act quickly. Having scheduling systems that minimise unbilled time and allow easy rescheduling and communications is also key. 

Standard Operating Procedures become important as well – there are often much more efficient ways to get a particular task done, and having people follow that best practice approach can save big dollars over a year. Accounting systems are also often neglected, getting timely accurate reporting every month, is critical to understanding whether things are getting better or worse. I’ve often found that people don’t get accurate figures more than once a year, 6 months after a year end. That information is history, and doesn’t allow timely action.

If any of these points hit a nerve with you –  consider getting a Business Diagnostic done. Business Success Partners Australia offers them for free, and they will pin-point where your particular gaps are. – It’s up to you what you choose to do with the results of the Diagnostic.

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