Jackie Zach
January 25, 2024
In this episode of the Make More Work Less podcast, Mike McKay and Jackie Zach dive into the importance of ensuring employees are effectively generating revenue for a business. Mike emphasizes that the primary purpose of employees is to drive revenue, and every hiring decision should have a direct impact on the company’s financial growth. He explains the need for clarity around employee roles, stressing that businesses must understand whether they are hiring for time or results, and how each role contributes to the overall mission. He also shares insights on tools like “The Five Ways” to assess potential employees’ contributions to revenue and highlights the challenges of growing businesses between $2.5 million and $5 million in revenue.
Jackie supports Mike’s points by raising important questions for business owners to consider, such as whether employees are truly adding value or just filling time. She discusses the necessity of analyzing payroll and categorizing employees as either income-generating or overhead. Both emphasize the importance of using metrics like labor efficiency ratios (LER) to objectively assess employee contributions. The duo advises business owners to avoid unnecessary hires and to be clear about the purpose of each role, whether it’s to generate leads, drive sales, or provide specific results. Their conversation offers valuable advice on aligning employee responsibilities with business goals to ensure effective revenue generation.
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Podcast Transcript:
Jackie Zach: Welcome back to the Make More Work Less podcast. We’re on question six of our 10-part series of questions business owners should be asking themselves. Today’s question is: Do you, as a business owner, know how effectively your employees generate revenue? This question helps you determine how many employees you need, whether everyone is working at capacity, and many other factors. So, how effectively are your employees generating revenue?
Mike McKay: Let’s start with a question that comes before that: Did you know the only purpose of employees is to make more money?
Jackie: Really?
Mike: It’s not to make…
Jackie: Haha, just kidding. I’m an employee myself!
Mike: This is the “tough love for the business owner” part of the podcast, Jackie. Your only reason for existing is to make me more money. Theoretically, though, we’ve aligned that so you can also make more money.
Jackie: You bet.
Mike: It’s a true statement. Every decision in your business should have a direct connection to making more money. Otherwise, why make it? Now, this doesn’t mean that the sole purpose of a business is to make money—but in the arena of business, where money is essential, nothing can replace it. If you want to donate $100,000 to the United Way of Dane County, you need to earn that $100,000 first. They won’t credit you for goodwill or accruals; it’s about actual money.
The game of business revolves around money. Employees are there to generate it. Their job isn’t simply to make your life easier—it’s to enable the organization to fulfill its mission. This requires generating more revenue. Without a clear mission, vision, and culture, your business lacks direction.
Jackie: That’s another important topic we should cover at some point.
Mike: It’s a separate question: Why am I here? We use a tool for my clients called “The Five Ways” to assess potential employees before hiring them. This tool helps determine how the new hire will impact the business. Will they contribute to lead generation, or will they free up time for the business owner to focus on it? Will they improve conversion rates, or will they allow the business owner or sales manager to dedicate more time to sales? It’s essential to measure these factors. If the new hire doesn’t directly lead to more revenue, it’s a poor decision.
In a company’s growth, there’s a phase called the “financial wasteland.” This occurs when your company is growing, typically between $2.5 million and $5 million in annual revenue. At this stage, you need to add management staff, which comes with a cost. It takes time for these new hires to become productive and help the company grow further. When making staffing decisions, you need to be able to answer how the role will contribute to revenue within three months. What specific outcomes will this employee enable, and how can you measure them?
Employees should contribute to making money for the business. That’s the only reason to have them—so they can help achieve the company’s mission and generate income. If they’re not doing that, it’s not a good hire.
Jackie: Exactly. So, the real question is: How do you determine if your employees are generating revenue? Are you analyzing payroll? Categorizing employees as income-generating or overhead? Be honest about it.
Mike: Are you running a labor efficiency ratio (LER)? Math—your impartial friend—will reveal whether your employees are contributing to gross and net profits. The LER is a crucial metric for this.
Jackie: Right. Are you at capacity or not? I often hear that people are over capacity and doing too much work.
Mike: Step one: Are your employees doing meaningful work, or is it just busywork? One of my clients had an employee quit last month, and their immediate reaction was, “We need to post the job and replace them.” I asked, “How will replacing that role make you more money?” It turned out they’d created this role during COVID to keep the person employed, filling it with admin tasks that didn’t drive revenue.
When COVID ended and the business grew, they never reassigned this person to a role that generated income. Fast forward to November 2022—this employee quits, and they’re ready to hire a replacement for a made-up role. My advice? Don’t. If you can’t clearly articulate how someone is adding value to your company, don’t keep them.
Every coin has two sides: without value from your employees, there’s no reason to have them. You might pay someone a full-time salary for work they can complete in 20 hours. If you grew up in the Midwest work ethic of “If you have time to lean, you have time to clean,” you’ll end up creating unnecessary work. But if that 20-hour-a-week employee is bringing in $500,000 a year, you’d be foolish not to keep them—even if they have free time.
Consider the numbers in your business. Think about your employees—why did you hire them? Are they making you money? Why might you feel uncomfortable with someone who’s really good at their job? I’ll argue that this likely means you don’t understand what you hired them for.
Jobs can be categorized into two types: result-driven or time-driven. If you hire an admin, you’re likely buying their time—they need to be at their desk 40 hours a week. But if you hire a salesperson, you’re buying a sales quota from them. If they hit their quota by Monday at 10 a.m., many business owners might think, “Your quota is too low; you need to work harder.” But remember, when you hired them for that quota, if it was a good decision, their ability to exceed expectations doesn’t make your decision any worse—it means you misjudged the situation. And that’s on you.
Jackie: Tough love!
Mike: Exactly. This highlights a common mistake: not thinking through the implications of hiring decisions. My dream is for our marketing team to finish their work by five o’clock on Monday and have the rest of the week off. They’re not there yet, but we pay them to deliver a specific number of leads. If they meet that target, they’re done for the week. I don’t need them to exceed it tenfold. As they grow, their pay increases. If they don’t hit their base targets, then they work the full 40 hours to improve.
Jackie: Right, exactly.
Mike: If they weren’t improving, they wouldn’t work for us.
Jackie: It’s really about understanding what you’re buying.
Mike: That’s right.
Jackie: Whether you’re buying time or results, understanding what you’re paying for is crucial.
Mike: Exactly. So, how do you assess how effectively employees generate revenue—or better yet, profit? Start by identifying why you hired them. What tasks are they responsible for? If it’s lead generation, what’s the KPI? Are they meeting it? For a salesperson, look at metrics like average dollar sales, number of transactions, or profit margins.
Be clear on what you’re buying: time or results. If you don’t know, hiring effectively becomes a challenge.
Jackie: Right, exactly. Alright, until next time—go kick some ass!