Getting a Return on Labour
It is always important to look at the issue of labour in your business. More importantly, what your level of labour is as a percentage of sales.
There are two main areas in your business that are labour intensive; cleaning of units and common areas as well as completing work in units or for the body corporate.
Your labour percentage relates specifically to the critical aspect of profitability. There are many resources you can engage in your business to get the most out of your team. Ultimately at the end of the day, there are two measures that businesses have used over the years to measure productivity.
1. The amount of labour (in $ terms) engaged per year as a proportion of sales
2. The quality that the labour has produced – either the product or service output.
If quality is high and labour is reduced then you have improved your use of labour in the business.
Quite often we can get caught up in what we do and not focus enough on the hard earned dollars that we invest into labour. Having said that, you may find that your team is working as productively as they can and the output is of a high standard. More than likely though, you will find that there is room for improvement in either increasing output or increasing quality or both.
For your own business, try calculating your cleaning wages or contract cleaning costs as a percentage of cleaning income. Then compare this to the figures you bought the business on or an industry average such as the ARAMA Costs and Charges Survey. Also, compare your current year percentage to last year’s percentage. Is it better or worse?
For those in management rights, look at your income from work done in units or for the body corporate as compared to what it was when you purchased the business. Are you charging all your time in units? Can you maximise your income from this source? Think about what an outside person would charge for doing the same work.
If the labour percentage is down, consider what you have done to become more productive. If the labour percentage is higher, consider what you have done to utilise more labour? If you have intentionally increased labour to improve service or quality, then this is the result of your decision.
You should try and measure your labour at least monthly. As labour is typically paid within a 1 – 4 week period, saving on labour or maximising productivity can equate to improved cash flow for your business.
Because labour is such a high proportion of your costs, it is important to measure and manage your labour costs. If you can maximise your return on your labour, then you are a long way towards improving your bottom line and thus the value of your business.
Stephen Shirley
sps Audit
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