By: Ruth King
These activities focus on billable hours or revenue producing hours. Customers write your paychecks. Your team members who produce your products and services are billable, i.e. revenue producing.
Here are profitability ideas for increasing billable hours.
#1 – Know your productivity ratio
You must know where you are starting before you can have a contest or other billable hours incentives. Your productivity ratio (also called compensation percentage) answers the question: for each dollar in revenue how much is the company spending on payroll and payroll taxes?
This ratio can be tracked daily, weekly, and monthly. I think daily is overkill. Weekly and monthly will give you a sense of productivity.
The lower this ratio, the more productive the company is. There will be a baseline at some percentage – you will see it as you track the monthly percentages.
Obviously the lower the percentage, the better the company is from a productivity standpoint. If your percentage is 101%, you are spending $1.01 on payroll and payroll taxes for each $1 in revenue. Not good.
When calculating this ratio include all payroll, including owner’s payroll. Include only FICA, Medicare, state and Federal unemployment taxes. Do not include any other benefits such as health insurance, 401 (k), etc.
#2 – Post your productivity ratio weekly
What gets watched gets better. What you focus your attention on gets improved.
Once you have your baseline, then post it somewhere everyone can see it. Explain what the productivity ratio is, why it is important, and why you are tracking it weekly. Your team members need weekly updates…a month in between updates is too long for them since they will lose focus on it.
Ask for suggestions to decrease this ratio and if possible, implement the suggestions. Your employees know who is wasting time.
Just post the aggregate number – not by everyone’s payroll. If there is one person who is non-productive, then have a conversation with that person privately.
You will see the productivity ratio go down until it reaches your baseline – whatever that percentage is. Then keep tracking it and posting it to ensure that the ratio stays at the baseline ratio.
#3 – Bonus based on estimate hours
Calculate a company incentive based on the productivity ratio being at a certain level. The question to answer is for each percent decrease how much does the bottom line increase?
Then, you can pay a percentage of the bottom-line increase to your team members.
Or, you bonus based on job performance. If a job is estimated to take 16 hours and it takes 14 hours to complete, options are to pay the 16 hours or a bonus of $X per hour for meeting the projected hours.
For example, if a project is estimated to take 16 hours to complete and the bonus is $5 per hour, that is only an additional $80 cost to the job, which you can put in the estimate.
Of course, this assumes the project was completed correctly and there were no warranty calls associated with it (you don’t want team members rushing through the project to get their bonus and doing a sloppy job).