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Friday
Mar252011

Back to Basics #1 - The right number of people

by Darren Shirlaw
You can download this article as a pdf [318kb] by clicking here.

Is the market still flat?

From July 2007 the market went south until March 2009, then bounced for six months until September 2009. It’s remained flat ever since.  At the end of 2010, and going into 2011, we’re three and a half years into a market that has gone down, slightly recovered and is now flat. The big question: ‘How do you create growth in a flat market?’ The answer: ‘Go back to basics.’

Series 1. Building the growth platform

Article 1. The right number of people

This article is part of our back to basics campaign, with two series, ‘building a growth platform’ and ‘creating growth in a flat market’. Businesses must build a strong platform over the next few years in preparation for economic growth. Essentially this means having the right number of people doing the right jobs with the right level of skills. This article is the first in the series covers the right number of people.

Having the right number of people is a concept we call ‘capacity planning’ – calculating the exact number of people you need in each business team to maximise your profit level.

Most businesses tend to grow by simply adding a few more people during busy times. They add one, add one and add one more. Eventually the senior team realises the business used to make more money when it was smaller.

The right staffing levels are profitable

Teams can make a good profit at certain staffing levels. Then they need to add more team infrastructure, which means more people. These are typically back office jobs. It’s only once they’re all in place that the business can recruit more people into sales roles to create more growth.

Over time, businesses will grow, plateau during platform building phases and then move into a growth phase once more. Profit levels will remain low in a platform phase while the business is investing in people to create future growth.

In Shirlaws for example, we know that four people in a team will make money. With seven people, we lose money. With 12 people, we make money again and with 17 people in the team we lose money and so it goes on.

In a big economic dip, many businesses start to lay off staff and reduce team sizes. At the same time they’ll be focusing on cash flow across the recession rather than on the strategic issue of having the right number of people to create profit.

Case study: A law firm had 174 staff and planned to grow to 191 by the year end. By calculating their capacity numbers and profit ratios, we showed them that 191 staff would make less money than 174. If they really wanted to make more money with more people, they’d need to increase to 214 staff. The critical number for them was first building from 174 people to 182 and then increasing again to 214. 191 was definitely the wrong number.

Many businesses don’t calculate these numbers – some may have simply forgotten during this economic flat phase. Others may not realise that such exact calculations are even possible and rely on the finger in the air method. They’ll typically say, ‘We’re getting busy so we’ll set someone else on.’ The business increases from nine to 10, to 11 then 12. Once it reaches 17, managers find they’re not making any money. ‘We used to make more money when there were only four of us!’

Recommendation: Go back to basics and get those capacity numbers calculated so you can plan your capacity ratios accurately.

You can download this article as a pdf [318kb] by clicking here.

If you want to discuss calculating the right number of people for your business, call Shirlaws on 020 7194 8131 or contact one of our expert business coaches.

 

Take Stages test: burst through your brick walls

 

There are 14 key stages that each business needs to go through to get to advanced, sustainable growth - including two brick walls which many companies never break through.

Find out where you are in the lifecycle - and what to do next. Complete stages and download your 15-page action plan.

Take the Stages test

 

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