Many businesses reacted to the recession by downsizing staff and leveraging key employees for expanded responsibilities. Now, with landscaping budgets starting to grow and competition in many markets waning, owners are facing the question of when and how to begin up-sizing to meet the challenge of growth.
While keeping your compensation budget lean may help you remain profitable, forward-thinking entrepreneurs also weigh the opportunity cost of such a strategy, the side effects of which can be burn-out of valued employees, wasted compensation dollars and sacrificed growth opportunity. You may also risk damaging customer relationships, as your already slim team becomes increasingly unable to serve the growing business effectively.
Here are a few clues to help you know when it’s time to expand your team:
- Employees on overload: Some employees will habitually complain of being overworked, but if they can justify their claims, and if you know they work hard and manage their time effectively, then adding a role may help increase productivity as well as team morale.
- Rising customer complaints: If you are hearing more negative feedback from customers on a consistent basis it may be because you’ve grown too fast and your current team can’t keep up with the demands of the additional work. Of course, it could also signal a need to increase the efficiency of your processes, but if you have attended to that and your team still can’t deliver the quality your customers demand, then it may be time to bring in reinforcements.
- Paying too much for simple tasks: If you or your senior staff spend a significant amount of time on tasks that could easily be handled by someone less skilled, that signals you are not only wasting your compensation dollars but you and your senior staff are less available to focus on core functions.
- Innovation stagnation: You have enthusiastic innovators who would love to sink their teeth into a new project, improve outmoded production processes, or explore new revenue streams, but they just can’t find time because they are mired in the extra responsibilities they took on when you downsized. You may be sacrificing the next iteration of your business to save a few pennies now.
You want to take advantage of a new opportunity to expand your service line but you have no staff to assume additional responsibilities. Or, the current mix of talent and skill sets are fine for the work you have, but you want to expand into areas that require different or more advanced skill sets.
To really understand the cost vs. benefit of creating a new position, you need to put fear aside, run the numbers and build a business case for the hire. Ask yourself two questions. How much more will you have to sell in order to pay for the new position? Or how much will the position bring to the company in recovered opportunity cost?
Here’s a very simplified example:
Your sales team, who seem to be stuck at the same level of performance for the past two years, have been asking for a sales administrator for more than a year now. The administrator would answer phones, correspond with customers, open mail, help prepare contracts, maintain databases, take notes at sales team meetings, etc. The position would be compensated at $40,000 per year + benefits (figure 30 percent) = your total cost for new hire = $52,000.
What does it cost you now?
Currently you have four sales people who are spending roughly 20 percent of their time each sharing these duties. The average of their annual compensation is $70,000 x 20 percent = $14,000 x 4 = $56,000
On compensation alone, the new position will save you $4,000 per year. But what will that position save in opportunity cost if the sales team were free to focus on their core function?
What is your opportunity cost?
Say the annual new sales revenue from the four salespeople over the past year has averaged $100,000 each. If each salesperson were free to spend 20 percent more time on generating new sales, you could predict 20 percent more revenue per person: 100,000 x 20 percent = $20,000 x 4 = $80,000 more revenue per year.
In this example, creating the new position will not only save $4,000 per year, but has the potential to bring in an additional $80,000 in new sales.
Once you’ve decided to create a new position, you should also determine the scope. Maybe you only need someone part time. Or, if the need is seasonal, perhaps a temporary employee would fill the bill. If you are dabbling in new territory that requires expertise beyond your current skill set, hiring a contractor may be the best option.
Regardless of the specifics, one thing is certain, if you want your business to grow, at some point you will have to expand your staff. When it’s time, applying some critical thinking and considering opportunity costs will help you make what can be a very emotional decision.
The author is an independent communications consultant in Glenwood, Md.
Hire Power is a monthly column designed to help you recruit, hire and retain the best talent for your company. We’ve got a rotating panel of columnists ready to give you practical, tactical advice on solving your labor problems. Email Chuck Bowen at email@example.com with topic ideas.