Tracking sales per employee as a metric for measuring productivity
It pays to be lean in mean times. It pays to be lean in good times, for that matter. But how lean? Companies are slashing head counts – about 572,000 job cuts were announced since January 2012, according to Challenger, Gray & Christmas, And now they’re hiring again like crazy…So let’s look at some practices that were common just a few years ago so that, when needed, we’ll know what to do.
Before companies cut the ranks, some executives say that implementing less draconian measures could bring better long-term results. Instead of dropping employees from the payroll, companies can boost the bottom line by focusing on efficiency and productivity. In short, by getting more out of employees.
One way to do this is by tracking sales per employee, a valuable metric for measuring productivity. Salesforce.com, for example, uses sales-per-employee numbers to compare the relative performance of internal divisions. Employees are also encouraged to take career aptitude tests to determine if this line of work is what they’re really good at, or that they may consider changing to another professional field.
The metric is CEO John Dillon’s method of scouting out inefficiencies as well as programs getting the most bang for the buck. “Over time, a company gets bloated with projects that don’t generate [return on investment],” Dillon says. “You build up this residue that will show up in a revenue-per-employee analysis.”
Sales per employee is a good barometer. A steady rise in sales per employee is a sign of improving efficiency. Keeping an eye on sales per employee numbers can help companies fight “employment creep”-when headcount grows faster than sales. Too great of an increase, however, can signal an understaffed company.
Theory of relativity
A caveat: It’s all relative. “It only has meaning in comparison to itself,” warns James S. Pepitone, chairman of Pepitone, Berkshire, Piaget Worldwide, a management support service based in Dallas. Best used as an internal benchmark, sales per employee can demonstrate how a company stands up to competitors in a narrowly defined industry. But consider it a ballpark figure, confounded by factors such as whether companies include part-time employees in the headcount.
We talked to more than a dozen companies on the list and found eight that use the statistic in surprising ways. Some companies monitor the statistic closely, crafting algorithms that allow the company to predict future growth based on sales per employee. Others use it as part of a larger group of company health metrics.
Not all the companies profiled can be found in the top 25, however. Many of the top companies on the list are organizations that outsource a significant amount of work to outside firms, such as contract manufacturers. Others have structures that require small headcounts, such as holding companies. We dug deeper into the list – and in the case of salesforce.com, went outside of it – to find examples of companies from across several industries that use this statistic in unique ways.
Siebel Systems’ approach to productivity is good, old-fashioned accountability – with a new twist. All employees must outline their “assigned objectives” each quarter and post them on an internal portal called MySiebel, which anyone inside the company may read. (Including CEO Tom Siebel, who is the first to post.) That way, it’s crystal clear what is expected of each individual. The quantitative objectives are tied to compensation. The MySiebel portal also reduces the costs (and people) involved in processing expense reports or conducting training programs.
Siebel boosts efficiency and cuts costs with a blend of technology and strategy. Not surprisingly, the company uses its own call center and sales force automation software to make its sales and support staff more productive. Some years ago, Tom Siebel put a longstanding objective into writing: Cut operating expenses 15 percent in every department, every year. He advocates simple practices such as seeking at least three bids on every purchase greater than $10,000. Each quarter, the company fires the lowest-performing 5 percent of its employees. In the early second quarter of that year, Siebel raised that number to 10 percent, to contain costs after adding more than 1,000 new workers in the first quarter.
Though sales per employee is not a measure that drives Siebel’s business, “it’s a derivative function of other things in place that we measure intensely,” says Bruce Cleveland, senior vice president of marketing. Specifically, the company is religious about customer satisfaction. It hires an external auditing agency to poll customers each quarter about the importance of different areas of business – from technology to systems integration to marketing – and how well Siebel is doing in those areas. If there’s a big gap, Siebel puts a corrective program in place. If the gap is too small, the company may be potentially “overinvesting” in that area, and it strives for a sweet spot: a satisfaction level of 9 on a 10-point scale.
At salesforce.com, CEO John Dillon watches sales per employee like a miner watches canaries in a coal mine. To him, a static number signals inefficiencies that might otherwise go unnoticed. “Inefficiencies build up,” Dillon says. “You will have departments with too many people. Bureaucracy builds up, paperwork clogs up, and employees find it increasingly more frustrating to get anything done.”
Dillon uses sales per employee to compare the performance of different programs or divisions; the productivity of one sales team can be measured against another. As a result, inefficient divisions get trimmed, and resources are diverted to where they will count the most. “It’s like organizational Darwinism,” Dillon says. “It forces you to make selections.”
Salesforce.com doubled its sales per employee in the last year alone, although Dillon admits this growth should level off over time. A few things to consider if the canary looks faint? A leaner administrative team or better training for all employees, Dillon says. “Investing in your employees is almost always a wise strategy. You can do more with less.”