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:
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.