Staffing Industry Metrics: Explosively Grow Your Staffing Firm’s Profitability with the RE Factor
February 1st, 2010Have you heard of the RE Factor? If you like to play with explosives on the weekends, then maybe you know it as the relative effectiveness factor, which measures an explosive’s power (e.g. TNT) in camparison to its weight. The higher the RE factor the bigger the bang per pound.
The RE Factor: A New Staffing Industry MetricWell, I’m bringing the RE Factor to the staffing industry and to your staffing business – and I’m not talking about mysterious packages that get mailed from remote places.
What I’m talking about is significantly improving the financial well-being of your staffing business by focusing on a different RE Factor: Return on Employee. Instead of explosive power per pound, we’re calculating revenue dollars per employee!
The calculation of such an important staffing industry metric is relatively simple:
Total revenue divided by the number of FTE’s (Full time equivalents)
This gives you the revenue production by employee, which gives you an accurate picture of the efficiency/productivity of your staffing business.
As a service business, the staff payroll is the biggest overhead cost to the business and therefore the most important lever for manipulating and improving the net profit. Many staffing executives underestimate the financial impact of improving the net profit as a percentage of revenue by as little as .5% of sales.
The following illustration highlights the financial incentive for maximizing your staffing firm’s RE Factor:
A $10,000,000 staffing firm that averages 3.4% net profit will add $70,000.00 to the bottom line by improving the net profit by 6/10ths a percentage point. That would be the mathmatical equivalent of adding 1.7 million dollars or 17% to the sales.
Where you might find it challenging to grow your revenue by 17% in this economy, if you take the time, you can probably build a business model that can pick up a 6/10ths of a percentage point on your net profit. Manufacturing companies have focused on this initiative and have increased the output of each employee by 300% in the last 30 or so years through process improvement and automation.
Let me know what you think of the RE Factor and ways you think staffing firms can improve their output per employee.
Dave Reiss
CEO and Founder
Applied Systems Technology
Don’t forget to connect with me on:
- Linkedin: http://www.linkedin.com/pub/dave-reiss/4/37b/218
- Twitter: appliedsystech
- Email: dave@astusa.com
