In a growing business, you will inevitably face the decision of when to add to your office staff. Each time you add a staff position, your business simultaneously experiences the trauma of expanding overhead with the relief of having more hands to accomplish the chores. Your challenge is to find the sweet spot between overworking your existing staff and adding unproductive overhead.
If you read my byline, you know that I'm the Plumbing Czar at Service Roundtable (www.serviceroundtable.com). We have hundreds of plumbers online and several have kicked around the "staff-to-field ratio." What is a good ratio of office staff to field personnel?
Some of our members indicate that one office staffer should be able to support three or four service people. Other comments placed the number closer to two field people per office staffer. Personally, I've seen shops with an incredibly inefficient 1:1 ratio. The obvious objective is to have fewer office staffers per field representative without sacrificing customer service.
Is there a reliable benchmark for the office/field staff ratio? I'll answer that question with a question: How much water is in a bucket? (That would be "pail" to those of you north of Oklahoma.) Personally, I don't care much for benchmarks because I've always held that to compare one's self to others is to set the bar too low. Also worth noting, benchmarks are, by definition, fixed and immovable. You use a benchmark when laying out a rough-in. If a benchmark was flexible, your toilet could end up in the dining room. (Not a bad idea if I'm cooking, but that's a different story.) In today's volatile economy, benchmarks can be more like anchors than standards, so let's explore some ways to set targets that are relevant to your own company.
Irrefutable Laws
Before deciding how many bodies to put in the office, you must be aware of two irrefutable laws. Like the law of gravity, you can't change these laws. You can only learn to cope with them and use them to your advantage.Irrefutable law No. 1 says that, in order to flourish, or just survive, you must make a profit. Hiring even a part-time office person to take care of phones and paperwork will increase your overhead, especially if you're a one-man band. Theoretically, the office person should improve your productivity, thereby offsetting his or her added overhead burden.
Will the additional body pay off? Here's a simple formula to help you figure this out. First, add up the cost of the new employee. Include insurance, FICA, workers' comp, office gadgets and other items. Next, apply the same profit margin formula you use for calculating a profitable job. This will help you estimate the sales revenue you'll have to generate in order to make the added expense pay off.
For example, if you're budgeting for a 30 percent profit and a part-time staff member costs $15,000 per year, you'll need $21,428 in additional sales to make the investment pay off. The formula looks like this: $15,000/(100 percent - 30 percent). Ask yourself if this additional office assistance will help you achieve the necessary additional production. If so, then you'll make a profit on the staff person. If it's not feasible for you to perform enough additional work to cover the added overhead, your options are to raise your rates or do without the help. This is not a moral issue, just a mathematical fact.
Irrefutable law No. 2 is self-preservation. Once you hire someone, that person's position becomes permanent. If you hire someone specifically to enter data from all those boxes of work orders you accumulated before you computerized, you will find that the job description will metamorphose into call taking, filing and other "indispensable" tasks. The position actually becomes permanent the moment you buy a chocolate bar to support his or her kid's soccer team. This is not so bad if you're able to maintain profitability without strangling your customers. However, in order to prevent overhead bloat, use a temp agency or some other form of outsourcing for special projects. The important point is that it's much easier to add a position than to get rid of it.
With these two laws in mind, how do you know when to add staff? First, examine your needs. If customers are complaining about getting an answering service in the middle of the day, it's time to consider a full-time CSR. Will a live person pay off? Look at rule No. 1 and calculate the sales necessary to make it pay off. Is it a feasible number? Can you produce enough additional work to cover the overhead? Will you have to raise your rates in order to accommodate the added overhead? If adding the position doesn't facilitate better production resulting in higher revenues, then forget it. You're better off listening to customers whine about the answering service than you are by cutting your profits.
Consider rule No. 2 as well. If you think it might pay off to have a body in the office, try a temp for a while. If the experiment doesn't pay off, you let him or her go. If you find that sales and production efficiency improve enough to make it work, fill the position with a permanent employee.
Speaking of permanent employees, we ought to clear the air right now: Your sister-in-law who married the deadbeat truck driver is not a temp. I know you are the boss and as the boss, you get to decide what to do with your business, but this does not exempt you from either law No. 1 or No. 2. If you create a "temporary" charity position to give your sister-in-law a job, you must find a way to make the position profitable because she will remain in that position forever. In the grand scheme of things, you may be better off just giving her some cash every now and then.
Sometimes overstaffing is a good thing. You can't do it all. Neither can your office manager/dispatcher/CSR/ bookkeeper. Often, these roles are filled by the talented bride of the business owner. Major problems crop up when your kid has to go to the eye-doctor or, if you're really down on your luck, the orthodontist. Even a nonfamily member is subject to domestic issues. One person can bring production to a standstill because of a sore throat.
Another risk associated with the omnibus position comes in the form of embezzlement. When one person is in charge of everything, it's easy to shave away valuable profits while keeping his or her tracks covered. Either way, it may make sense to be slightly overstaffed as an insurance policy. Remember the law - your customers must pay for the "insurance" or you must pay out of your profits. It's your choice, of course.
How do you split up the roles? First, prioritize. What must be done "in-house"? What can be outsourced? What tasks can be considered as luxuries? I can't tell you these answers because they depend upon the talents you have at your disposal. Keep in mind that the personality of a good bookkeeper may mean a dislike of being interrupted by those pesky customer calls. You may need to outsource one of these positions until you grow enough to make it a profitable internal post.
The Most Important Ratio
How is it that some shops struggle with a 1:1 ratio while others can keep half a dozen techs rolling with just a single office person? You might credit smart hiring of talented people. You might give cutting-edge technology kudos. No doubt, these two are important but I'm convinced that the most important element of an efficient office is right there between your ears. If you're running a business, you must be a team builder. When the office and field staff are unified in their mission and seeking the same goal, they will be more efficient.The shops I've seen with a 1:1 ratio were like a black hole. Energy that should have been directed to customer service and profits was instead wasted on interoffice politics and other time-wasters. If everyone was aiming at better customer service and higher profits, there wouldn't be a need for so many people. Without vision, it doesn't matter what your office/field ratio is because you're draining the life out of your organization. In other words, vision comes first, then fill the needs in order to build profits. If you're doing this, the ratio will be correct, whatever it is.
