Small business life has a way of regularly surprising you. Your current client job might feel completely within your control … until you learn there’s been a big mistake that will take a week to fix. Mistakes or simple ineffectiveness such as this can prove very costly if they become chronic. Once you pay your staff a week’s wages just to fix the error, you could end up making no profit on the job.
This brings us to staff effectiveness and business write-offs: both crucial topics for service-based businesses. Together, they comprise the theme of this article, the second part of our three-part series on ensuring your staff are actually generating profits.
In part 1 we covered staff utilisation — which is ensuring your staff are spending enough hours on client work, as opposed to non-billable time.
In this article, we’ll cover the ways you can ensure you’ll be able to bill your client for all of those hours through improving staff performance and efficiency. So, read on for eight key tips to improve effectiveness in your service-based business.
What do we mean by effectiveness and write-offs?
This is easiest to explain is by an example. Let’s say you accept a job and expect you’ll need 10 hours of labour to complete it. Your client will either have a fixed or indicative quote from you that is based on those 10 hours.
However, if your staff are too slow or are making mistakes then the job might take 15 hours. This is not ‘effective’ — that is, adequate for the purposes of making money.
If you’re only able to charge your client for 10 hours, but you need to pay staff wages for 15 hours, then you’ll have reduced your profit margin. You’ll have written-off 5 hours of billable time.
8 ways you can improve effectiveness
For your staff to be as effective as possible, they need to be given the tools to do the job, understand clearly what the job is and have their results measured. This then flows to improved profits. The following eight tips give you an idea of ways you can improve effectiveness in your service-based business.
Review your ideal client
- Are there some clients that value the type of work you do so much that they’re always willing to pay for the unexpected hours required?
- Are there others that make it difficult to complete a job, but don’t want to pay for the luxury of changing their mind?
You might need to review the types of clients you work for and determine if there is a type that best suits your team and processes. Next, ensure your marketing and recruitment is targeted towards those clients.
Focus on what matters
You might find that there’s unnecessary time being spent on things that your clients really don’t value. It may be wise to determine exactly what your clients do find valuable and focus on this. Perhaps implement post-job surveys of clients to get feedback and adjust your processes accordingly.
Knowing when to say no
If you accept jobs that your team is not skilled enough to complete efficiently (because it’s outside your skills, experience or knowledge) then you’re more likely to face write-offs. Stick to what you do well.
But do note there is an exception to this. You may decide to take on a job knowing it’s a stretch and won’t be profitable, but your team will gain valuable experience by taking it on. So, some “outside your wheelhouse” jobs may still be worth doing due to the skills, market credibility or accreditations that will be acquired.
Sharpening your processes
Hopefully, you already have your key processes documented. If not, we recommend you read The E-Myth Revisited by Michael Gerber: it dispels the myths surrounding starting your own business. In small businesses, it is quite common that key processes don’t get the ongoing attention they need.
Why can’t you just set-and-forget something that works well enough? Because things are always evolving. It could be that you haven’t made improvements based on new technology that is now available. It could also be that some of your staff have worked out better ways to do things, but they haven’t shared this with the rest of the group.
Another way to look at it is ‘eliminate, automate or outsource’:
- Are there any processes your team are following that could simply be removed?
- Is there software that allows you to automate steps?
- Should you just outsource certain tasks?
Make the process of sharpening your process a regular part of your business and then instill a culture of collaboration within your staff.
Using the right staff and scheduling appropriately
Given that wages will be your greatest cost, you should be looking for ways to most effectively use your workforce. (This relates to the concept of staff utilisation covered in part 1 of this series on generating profit.)
Most jobs will involve both simple tasks and complicated tasks. You don’t want senior staff completing work that a junior can do just as well. That will end up costing you more and stops those staff from doing higher-value work. It’s just as important that you don’t have junior staff completing work that a senior staff member should be responsible for. Inevitably this leads to mistakes that will need to be fixed and, again, ends up costing more.
You need to ensure you have the right mix of staff on each job. This can only be achieved through understanding the work required and scheduling time appropriately.
Improving skills, with purpose
When your team have greater skills, then they’re likely to:
- perform their own work quicker and with fewer mistakes
- communicate within their team and with clients more effectively
- train your junior staff more quickly.
All of these should reduce the amount of billable time you need to write-off.
We’ve also seen businesses make the mistake of adding extra staff to a job because “at least they’ll learn rather than sit around the office”. This can be a false economy. While some of the time, they may be learning, it may also be an indication that the forecasting for the allocation of staff to jobs needs adjusting.
In relation to staff training, it’s always best to do this with purpose rather than ad hoc. Instead of putting them on a job they’re not ready for, look for strategically sound ways to accelerate their learning and their ability to work independently.
You’ll never be able to eliminate all mistakes, but you can work to reduce them where possible. One of the best ways to do so is through shared learning about the mistakes that have been made. After all, you can’t fix what you don’t know about and your team members can’t fix what they don’t know about.
Within Eagle Financial, we make it clear to our team that when a colleague makes a mistake:
- They are to own it, taking ownership with the full confidence of our team
- They make it right
- Most importantly, we all learn from it. We question our systems and processes to see if something could be changed to reduce or prevent similar errors from reoccurring.
Make sure your staff know the focus is on being better, not finding someone to blame.
Perhaps your team has a habit of underestimating the time that a job will require. Or maybe there’s some types of jobs that you do that are highly efficient (and profitable) and others that are messy and slow (and unprofitable).
Think about the following questions and how you can make adjustments that will help with staff performance:
- Is there a way you can improve the accuracy of your quotes?
- Can you avoid the unprofitable jobs?
- Do you have clear expectations set with your clients of what is included and what is outside of scope? (Scope-creep is often a cause of write-offs, particularly in professional services.)
- Do you track the key metrics of each job to know whether it worked out as expected?
Where do you start the profit-improvement journey?
First comes a period of self-reflection. Do you want to change, or need to change? Commit to answering this question as comprehensively as you can, and then ask yourself these follow-up questions. The answers will lead you to the easiest gains from the smallest effort.
- Have a clear understanding of which type of jobs you make money on and which ones you don’t?
- Set clear guidance to your staff on what work needs to be done to complete a job? (As opposed to things that are superfluous.)
- Turn down jobs that don’t suit you?
- Have processes that everyone follows and new staff can learn from?
- Schedule your work in advance and know that you have the appropriate mix of staff to complete the job on time?
- Train your staff with the intent to develop their skills?
- Have a team that makes the same mistakes over and over again?
- Create an environment that encourages and supports the acknowledgement of mistakes and the resulting shared learnings?
- Know whether the estimates used in your quotes match reality?
- Have an organisational culture that learns and refines processes when you get things wrong? (Hint: Gut-feel is not good enough. You need to know the numbers. If you measure it, you can improve it.)
Answering these questions can be complicated, but it’s worth it. It will ensure you get the most efficient and effective staff, and thus reduce write-offs. The result will do wonders for your bottom line. As your staff’s performance improves, they also will appreciate the value of doing better, learning more and advancing.
You can see how addressing the issues in this field can be involved and complicated. If you’d like a bit of guidance, come and talk to us. We’ll help you analyse the best ways for your service-based business to improve staff performance and staff efficiency, all towards ensuring you generate better profit