Whether you have employee's, contractors, or service providers and they're working full time or part time, it doesn't matter. Chances are you're not getting accurate accounting for their true expense to your business.
It's important to track the full cost so you can get an accurate report on your financials. There are several places where you may already be tracking this but have you ever broken it down to a very small measurement?
In AnyHow we break down employee costs to the hour. Because AnyHow is designed for consultancies (and consultancy "like" businesses) it makes the most sense to measure by the hour as that's almost always how you're billing. Even in the case where you're billing by some other measure, flat rate for example, it's still useful to see how much time is being spent by your staff and it's true effect on the bottom line.
Breaking It Down
There are so many factors that go into the final hourly cost for each staff member and each can also have unique aspects that you need to take into account. In general, make sure you're including the following typical expenses:
- Salary or hourly pay scale (this item should be obvious)
- Payroll taxes.
- License fees (ie, business license fees, etc.)
- Insurance costs. Don't just think health but also dental, vision, liability insurance, travel insurance, etc. Many of these may actually apply to the staff members role(s).
- Expenses. Think cell phone, internet, voip, subscriptions, email costs, etc. Also remember that if your staff can expense similar expenses for working from home, you should consider this cost as well.
- Office extras. Think about your average monthly spend for things like coffee, water, food, alcohol, supplies, etc. All of this comes into play.
There may be other items not listed but it's something you can think about in your business.
Assuming 160 hours per month (40 hour/week, 4 weeks a month) then you can take the total of one of these expenses, divide by the number of staff members (including yourself), than divide that by 160. You now have that employee's hourly adjustment for a given expense.
Now, most of these will be pennies but to quote Lane Pryce from the amazing series Mad Men, "Pennies make pounds and pounds make profits!" They may be small, but they can add up and it's important to know where your money is going.
Non Client Work
There are always need for staff work that is not client billable. This can be company meetings, HR paperwork, peer reviews, administrative tasks, etc. You should still be tracking these hours to see how much time is being spent in each area/task.
Generally what we do is create a client in AnyHow that is, well, ourselves. Then we create all internal tasks that need to be done as roles and give each employee access to the relevant roles. All staff logs their time based on what they did in a given work day and at the end of the month, we can use AnyHow to produce a very useful report that shows us the break down, true costs, profits, etc.
While this isn't an exact science and each business is unique in their own requirements, we feel it's a good idea to try and be as accurate as possible with staff costs. A percentage point or two can mean the difference in achieving a quarterly goal (or whatever your goal may be).
Do you have any tips for how you calculate your costs? Please let us know.