Skip to content

Job costing: How to prove the ROI on your employees

Get up-to-date HR insights sent to your inbox

Are you satisfied with your employees’ overall productivity? Do you feel like you’re maximizing the ROI on your payroll?

If you talk about business productivity, you can’t overlook financial productivity. You need to determine how much you’re spending – in employee time – and how much profit you’re making on each project.

It all starts with correctly pricing your services, based on people hours.

Here are three key steps:

1. Track your payroll expenses at the same level you are billing your clients: by customer, job, service, item, department, team or person.

2. Post that cost in your accounting system and you can see your profitability by each of those categories: Who is your most profitable person, team, department, etc.?

3. Then you will begin to determine whether your jobs are priced appropriately. Every business owner has a profit-per-job expectation. For example, you want to make 50 percent profit on a specific job. If you only make 35 percent, you have to determine the cause of the shortfall.

Very often, your pricing is off. Or, is it your employee productivity?

Finding the real cost

1. What’s the real value of service?
Tracking the real cost of delivering a job allows you to start selling the real value of its service. There are always hidden things that you don’t realize you’re giving away.

Take, for example, the cost of having a project manager (PM) on a job. Some business owners don’t figure in the benefit of having someone supervising quality control, communicating with the client and overseeing all the checks and balances. The value of having a PM doesn’t get captured until you see the true cost of providing the service.

After a business owner realizes that, he can then build in the cost of having a PM on future jobs. Just by making one small change, profits can go through the roof because you’re pricing your jobs right.

2. Is your staff working as efficiently as possible? What’s the difference between your best and worst jobs; between your A and B players? It usually comes down to two things: the skill sets or behaviors of the employees.

Behaviors are different from skills in that they have to do with how someone acts – usually a part of their character. Skills have to do with competence or ability.

If you can start to define what behaviors the A players have, you can build those behaviors into a recruiting plan and ask interview questions around them. For example, you might need them to be proactive problem-solvers, so you ask an interview question such as: Do you like crossword puzzles? A person’s hobbies may also give insight into their behaviors.

With a human capital strategy, you can assess the skills to determine your employees’ abilities. Does someone need more training? Or, if they’ve had training and things aren’t improving, is the person in the wrong job? Or, maybe it’s not the wrong person in the wrong job – it could be the supervisor.

3. Is it the supervisor? Does one supervisor engage with their employees better than another? Employee engagement directly leads to profitability. If the supervisor is lacking, you’re likely not getting the most out of your people.

The saying goes: People join companies and quit bosses.

Look at the skills and behaviors of the supervisor and develop an engagement plan. You can’t have an effective human capital strategy unless you know who are your best teams, your best jobs, your best employees, your best supervisors.

Employee engagement and the bottom line

A very powerful concept is that a company can increase profit by more than 3 percent just by gaining 15 minutes of extra workforce productivity per day. If you can get all of your employees to add 15 minutes of productivity each day, that will translate into a 3 percent improvement in your bottom line.

That means that for every million dollars in revenue, a 3 percent productivity improvement adds $30,000 to the bottom line.

Chances are, at some point, your employees have slacked off while on the clock. It could be anything from checking news sites or online shopping to setting up fantasy football teams, socializing with coworkers, doing personal work or taking long lunches. And oftentimes it’s because they aren’t engaged in the company.

Studies have shown that companies with engaged employees have significantly higher earnings-per-share than their competition.

What sets these high-earning companies apart? A human capital strategy that drives employee engagement.

How to increase your ROI

How do you get your employees engaged enough to deliver the 15 minutes per day of increased productivity? A human capital strategy can help you:

  • Define strategic objectives and goals to achieve them
  • Manage employees as assets not as expenses
  • Understand the behaviors that make people successful and create a culture that allows them to thrive
  • Recruit people that fit that culture
  • Give performance reviews to help employees understand their goals and how they support the company’s goals
  • Make sure they have the resources to achieve those goals, including the training that will help improve productivity and basic skills

Want more great tips on nurturing talent? Download our free e-book, How to develop a top-notch workforce that will accelerate your business.