Should We Add That Extra Employee? How To Decide

With all the talk of potential tax credits for employers who add jobs, here’s how you can determine whether adding an extra employee “pencils out” for your store.  It all starts with a key - but all too often overlooked - productivity measure for retailers.

Step #1: Calculate the Average Sales/Employee of Your Business
That’s right.  Take the total sales volume in a year, and divide that by the total number of employees you have.  And that means all employees, not just your sales associates.

Step #2: Recap the "Where Are We Now?" Most Recent 12 Months for Your Business
Just the big categories from your P&L: Sales, COGS, Gross Margin Dollars, All Operating Expenses (including taxes, etc), Net Profit. 

Step #3.  Estimate the Total Cost of the Additional Employee
Estimate the wages/salary you expect to pay, plus benefits, taxes, etc.

Step #4A: Project a New P&L (Case A) Reflecting the Additional - Productive! - Employee
First, assume that adding the new employee will generate at least the “Average Sales/Employee”. Everybody who works for you already understands that they're supposed to help grow the business, right?

So, increase sales by the “average/employee” amount. For purposes of our "what if...?" analysis, keep GM the same, increase Operating Expenses by the estimated costs of the new hire, and calculate your new Net Profit.  (And, if you want, add in a tax credit for the new hire, too.)

Step #4B: Project a New P&L (Case B), Reflecting an Additional - Unproductive - Employee
Now, to the other end of our "What if...?" thinking: project the P&L for your business with the added cost of an additional employee, but no increase in sales productivity for your business.

Yes, these two “What if...?” scenarios are the “best case” and “worst case” ends of the spectrum.  All the better to help you frame your decision. And, clarify your goals for adding the job: grow sales? Increase efficiencies? Improve skill sets of present staff?

Step #5: More “What if...?” Thinking by You - Focused on Productivity
As you start penciling out your own scenarios for measuring the productivity of a new hire, you also may want to factor in the cost savings that result from some staff additions.  This reduction in Operating Expenses in some cases offsets the additional costs of the new employee, and can impact your bottom line smartly.

The key: have the expectation that adding an employee must result in more productivity - greater sales, fewer expenses, or both! - and more profitability for your business.  If the additional employee cannot "pencil out" on this basis, your decision will be made.

(Have Access Privileges to the Members-Only Collection at The ROI?  Remember to use our online P&L Planner for your "what if-ing".)

Should We Add That Extra Employee? How To Decide

With all the talk of potential tax credits for employers who add jobs, here’s how you can determine whether adding an extra employee “pencils out” for your store.  It all starts with a key - but all too often overlooked - productivity measure for retailers.

Step #1: Calculate the Average Sales/Employee of Your Business
That’s right.  Take the total sales volume in a year, and divide that by the total number of employees you have.  And that means all employees, not just your sales associates.

Step #2: Recap the "Where Are We Now?" Most Recent 12 Months for Your Business
Just the big categories from your P&L: Sales, COGS, Gross Margin Dollars, All Operating Expenses (including taxes, etc), Net Profit. 

Step #3.  Estimate the Total Cost of the Additional Employee
Estimate the wages/salary you expect to pay, plus benefits, taxes, etc.

Step #4A: Project a New P&L (Case A) Reflecting the Additional - Productive! - Employee
First, assume that adding the new employee will generate at least the “Average Sales/Employee”. Everybody who works for you already understands that they're supposed to help grow the business, right?

So, increase sales by the “average/employee” amount. For purposes of our "what if...?" analysis, keep GM the same, increase Operating Expenses by the estimated costs of the new hire, and calculate your new Net Profit.  (And, if you want, add in a tax credit for the new hire, too.)

Step #4B: Project a New P&L (Case B), Reflecting an Additional - Unproductive - Employee
Now, to the other end of our "What if...?" thinking: project the P&L for your business with the added cost of an additional employee, but no increase in sales productivity for your business.

Yes, these two “What if...?” scenarios are the “best case” and “worst case” ends of the spectrum.  All the better to help you frame your decision. And, clarify your goals for adding the job: grow sales? Increase efficiencies? Improve skill sets of present staff?

Step #5: More “What if...?” Thinking by You - Focused on Productivity
As you start penciling out your own scenarios for measuring the productivity of a new hire, you also may want to factor in the cost savings that result from some staff additions.  This reduction in Operating Expenses in some cases offsets the additional costs of the new employee, and can impact your bottom line smartly.

The key: have the expectation that adding an employee must result in more productivity - greater sales, fewer expenses, or both! - and more profitability for your business.  If the additional employee cannot "pencil out" on this basis, your decision will be made.

(Have Access Privileges to the Members-Only Collection at The ROI?  Remember to use our online P&L Planner for your "what if-ing".)