10.
Labor Efficiency Ratio (LER)

Crabtree’s Framework as True North

It's often said that all time tracking is a lie, but a useful lie. Although recording time has always been a chore, it doesn't mean we cannot get closer to the goal of better understanding ourselves and how we spend time. Discovering Greg Crabtree's Labor Efficiency Ratio is one of those aha moments that helps reduce the complexity of running businesses where success hinges on the cost of labor. The goal is not to reduce the cost of people at any cost, but to better understand our needs, what we can afford to pay people as a business, and to increase our control over the number that dominates small business strategy. You need your gross profit number to be three times larger than the total you pay people to do the work, it's as simple as that.

LER offers us a compass to use in (very) difficult conversations each owner must face:

• We must invest in affordable junior talent (prospects who won't be high value tomorrow)
• Our senior employees must pull their weight (hitting home runs and teaching our prospects how it's done)
• Talent we can no longer afford must be encouraged to find more money elsewhere

The Goal Is to Elevate People Beyond Your Salary Cap

LER, in combination with The Talent Siphon, forms a beautiful cocktail that truly puts people first. You get to decide what your business can afford and your people get to decide whether they can earn more elsewhere. It's not an ultimatum, it's an adult conversation about prosperity where we socialize the fact that small businesses cannot stretch beyond their means to keep a "family" together. Where we encourage our best people to decide on which is more valuable — a learning organization which communicates only about the salary bands they can afford, or a better-paying alternative company that hides its salaries and expectations, with less-than-great reviews relevant to what it's like to work there.

Eventually people will decide that they can get a lot more money than you can pay and leave for greener pastures. This is a textbook win/win that should be celebrated with a leaving party. thanking them for their valuable contribution.

We’re Doing Fine as It Is

Gut feeling, or taste, is great for many of life's important decisions. But without a measure that can be applied to both projects and the overall business, operators tend to post-rationalize what really comes down to luck. Good years are down to good decisions, bad years are outsourced to the market or someone we cut loose. It's harder to face the reality that unless we prioritize how we spend our time, we're communicating to our people that work just happens.

Parkinson’s Law dictates that "work expands so as to fill the time available for its completion"

Letting the tides carry us is not management, and unless we commit to embedding time management into our culture, the randomness of your results will persist.

"Nothing of value happens without labor productivity. Labor efficiency is the number one driver of profitability."

Simple Numbers. Straight Talk, Big Profits!

Businesses either make things, sell things, or do things. For service-based businesses like yours, the vast majority of your costs are people costs. Measuring that expense is crucial to a healthy business.