<p>Is there some basic number that employers expect employees to add to the company bottom line? </p>
<p>Say the total compensation of an employee is $75,000 would an employer expect that employee to generate a certain amount of revenue or profit. Is it 5-1, 10-1 or 100-1?</p>
<p>Is there any reason an employer would not hire someone that could bring in $10 dollars for every dollar the compensation costs if that $10+ would not be generated if that employee was not hired?</p>
<p>There are many different functions. Sales people would be expected to bring in big bucks. An accountant? An HR person? A programmer? Not so much. Not everyone works in a revenue-generating position.</p>
<p>Yes I know that but if you can tie the hiring to a certain level of revenue generated or actual profit is there a certain expectation of a baseline number a revenue generating employee is expected to obtain?</p>
<p>Also if I hire someone and they cost me $75,000 but bring in $750,000 any reason not to hire them? The $750,000 would come in over and above what current employees generate already.</p>
<p>Positions in sales often have a commission component to compensation. Why do you ask, Tom1944?</p>
<p>It’s hard to predict the future, so how can you be so certain this individual is going to generate these additional sales, btw?</p>
<p>You do not need to keep them employed if the sales/profits do not continue. You can layoff or slim the ranks through attrition. Bank of America just had a massive layoff because refinancing has dried up. During the mass feeding frenzy of refinancing they must have made the decision that for every x employee we hire they can generate y deals which will generate profit. The demand was there at one time and hiring increased to capture it.</p>
<p>Deb- I ask because I want to make a case for the need to hire at my government employer and I would like to make the case in a similar manner to how it would be made in private industry.</p>
<p>If there are sales that are not being made because there are too few people to follow up, that might be one way to make a case. However, since you are working for a government employer, I doubt that “sales” is a concern. Perhaps you feel that certain people are being overworked due to a small staff, or perhaps you feel that essential tasks are going undone. If you are looking to make a case for additional hiring, I’d try to quantify what people are supposed to be doing (eg, servicing 10 clients, or processing XXX invoices) and how long that should take (eg, each client requires on average five hours a week, or each invoice requires on average two hours to create) and then demonstrate that the current staffing level is insufficient.</p>
<p>Good luck with that.</p>
<p>Generally its cheaper to overwork the employees you have than hire more.</p>
<p>I oversee people that are responsible to collect sales tax and employer withholding taxes that are collected by businesses but not sent to the State. It is a very large amount of money and there are many businesses that it impacts.</p>
<p>I was considering making the case using Bill Bratton’s model for crime reduction- you have to be able to deal with the small stuff because that has an impact on the big stuff.</p>
<p>I can clearly show x employees can be anticipated to collect y dollars but there are also many other issues that need to be dealt with that if done correctly would increase the number of businesses that become voluntary payers of the taxes they collect. That is the ultimate objective.</p>
<p>“Adding value” as measured by sales or revenue is approaching the question overly simplistically. Expanding on what VeryHappy said in post #2, consider say a Quality Control chemist in a pharmaceutical company. </p>
<p>Viewed one way that person’s salary and benefits are totally overhead. He does not create any products nor does he sell any. He produces nothing tangible and sells nothing. Viewed that way his added value is worse than zero. It’s a net negative. For this reason companies often skimp on QC. They often pay lower for jobs in those departments and push hard to increase productivity without incurring any more expense. Every nickel they can squeeze out of QC is 5 cents less overhead expense they will incur. </p>
<p>But viewed another way he is responsible for 100% of the company’s sales revenue. Because the law and FDA regulations prohibit the sale of drugs that have not been properly QC tested and all the relevant records kept. Nothing gets shipped to customers without QC testing and approval.</p>
<p>So what is his added value to the company? He hasn’t made a single sale, or closed a single deal, or made single research discovery, or built a single product. Is his value 100% of the sales revenue or is it none of it?</p>
<p>I am sure his company sets a value to his position. They make a decision if we have x number of these positions we can comply with all safety positions which makes the position worth x to the company. If we have more than x we are not increasingly safe so x+ has no additional value.</p>
<p>I am speaking specifically about positions where it can be measured- sales, collections, processing. Would a company rather have 1 employee that costs $100k who brings in $1 million or two employees that cost $200k that bring in $1.8 million?</p>
<p>Tom, the basic answer is no, not only do most companies - small or large - have little idea what marginal revenue relates to specific jobs, but they are bad at knowing their own employees’ productivity, especially outside a few classifications. </p>
<p>I’ve seen cases where they think salespeople bring in x, so they should get paid this and then they starve the support staff and/or technology so their salespeople can’t actually bring in x … and they blame the sales staff instead of their own mistakes. And many good decisions are made ad hoc, like you create a new territory or add people here and then realize that means you need to add here (and maybe subtract over there). </p>
<p>I think that if you’re looking at tax collectors then you have a better shot at a numerical justification. I know our town looks at what meter maids - terrible name, especially since not one is named Rita - so “parking enforcement officers” bring in and staff based on that plus other factors like complaints (about not enough enforcement, too much). </p>
<p>But then our post office has just cut routes - had to cut money, especially since they can’t eliminate Saturdays and unprofitable rural areas - and they now rely on part-timers to finish a bunch of the routes because they either under-estimated the time it takes, which is only partly related to the physical length of a route, or they had no choice. So given the number of supervisors following postal carriers around for months, they have no good system that translates from computer guesses to the field.</p>
<p>As to your question in the post above, the essence of American companies is they chase marginal dollars. Even when the cost of that revenue exceeds the revenue! (Which speaks to both hope for the future and lousy controls.) Companies would plump for the $1.8M in a heartbeat. </p>
<p>They might look as well at the marginal profit: is that extra $800k at cost or is it profitable? That isn’t your issue. And even then, most companies would go for the revenue because they believe in revenue. Even in hard times, it’s more difficult to convince companies to invest money in cost savings than in revenue enhancing initiatives. It’s become easier but the payback rate expectations are vastly different: they’ll chase a marginal buck that drops a penny or two in profit or that may be break-even for years but they’ll only upgrade a system for a cost-savings measure if they see an immediate large return. That is why so many “cost savings” are sold as revenue enhancers (and then why so many revenue enhancing measures are wastes of money).</p>
<p>Our big problem is that the true objective for us is to increase voluntary compliance. Voluntary compliance is obviously the least expensive method to get the tax collected while my staff is the most expensive. The problem is how do I prove that voluntary compliance increased through our efforts and that an increase in State revenue was not just the result of an uptick in the economy? The default position has been to say x people will collect y dollars. If we can get businesses to pay like they are supposed to because we have shown them that it is really the best option and the results of not doing so will be hazardous to their business that is better than collecting large sums.</p>
<p>The IRS estimated non-compliance around 18%. Cutting that number should be our goal.</p>
<p>Rule of thumb for professional services is that salary is 1/3 of realized billings, with the remaining 2/3rds split evenly between overhead (including non-salary compensation items, like health insurance and work comp) and partner profit.</p>
<p>For non-service businesses, employers have absolutely no idea what the marginal contribution of a new hire is.</p>
<p>When I was back at a law firm ages ago the rule was thirds…one third to salary, one third to support staff/expenses and one third profit.</p>
<p>(crossposted!)</p>
<p>Thanks- so if someone collected at least 3 times their salary they would pay for themselves and the overhead needed to do their job? Anything above 3 times their salary could be seen as pure gain?</p>
<p>It can be difficult to calculate those kinds of things out for the kind of position you are talking about. You can say that presently, with X workers, that let’s say 10 people whose salary comes out to 1 million, are processing X millions in taxes. </p>
<p>What you need to do is make a case that if you hire someone else, that it impacts the bottom line more then the cost of hiring, as you point out. The hard part is figuring that out, and using your example, this is what I would do.</p>
<p>So the IRS estimates that 18% of revenue is not collected because it is voluntary compliance (like out of state sales tax). You would need to make the assumption that let’s say you are collecting 8 million, that there could be another roughly 2 million you could be collection (using the 18% lost number). </p>
<p>The key to hiring would be to find some sort of statistic that shows that with voluntary compliance/self reporting, that hiring more people increases the rate of compliance, and by how much.</p>
<p>So, for example, let’s say industry figures showed that for every compliance person hired, that the rate of lost revenue dropped 5%, so in this case would go from 18% to 13%. So instead of 8 million bucks, you now would theoretically get 8.5 million (I am rounding the numbers a bit, doing this without a calculator), a gain of ~500k. So if you hired for 100k, it would be 5-1…(these are all hypotheticals)…on the other hand, if it increased it only 1%, wouldn’t be worth it.</p>
<p>There are also other somewhat intangibles. For example, if the turnover rate in your office is high and the chief cause seems to be the workers are overworked, that could justify hiring. Replacing workers is expensive, and if you have high turnover the cost of recruiting, training and getting people up to speed is not small, and having new workers means the rate of non compliance might be higher in your job then averages, it could be that in hiring someone to lighten the load, that your compliance rate goes through the roof, because people don’t leave, you have experienced staff, and morale goes up…it is hard to float that by beancounters, but I can tell you from personal experience with agencies like the SEC that lack of experience on the part of their staff is one of the reasons you see the kind of financial mess like the Madoff case, inexperienced staff were afraid of Madoff and his power, and it let him bulldog them into overlooking issues being raised, and this goes on all the time.</p>
<p>I wouldn’t use a law firm analogy. The structure is that partners make money off the pyramid of associates, often called "leverage, meaning the number of associates per partner. But as a very general rule of thumb, service industries in general - restaurants, etc. - try to keep hard costs to 30%, as in the cost of food shouldn’t be more than 30%. But it really does vary.</p>
<p>I think you hit on something important when you mentioned the goal is to increase voluntary compliance. That suggests to me a way to segregate the idea and thus the costs into a project: an initiative for increasing voluntary compliance among your customers. You allocate x amount of admin time, y amount of overhead (rent, etc.) and z for additional personnel costs and do a sensitivity analysis which looks at additional revenue generated from additional compliance. You propose a metric for thinking about what is additional compliance: more returns, changes in return amounts, etc.</p>
<p>Thank you. You have all helped to give me avenues to consider and research. </p>
<p>The last few years of hiring has allowed us to bring in some very talented staff. A poor economy does wonders for government hiring. I am hoping I can bring in another class because the need is there. The recent new hires have really made my senior employees step up their performance also, The slackers really stand out now and the environment we have created puts added pressure on them to up their performance. It is easier to deal with the weak performers when the balance of staff is doing good work.
It is a very good job with a lot of positives to offer.</p>
<p>Can I apply? ;)</p>