Episode Six | Asset or Expense? Maximizing the True Value of Your Employees
Top Branch with Beth Bender and Ruth Ann Janson
Ruth Ann: Hi, I'm Ruth Ann Janson and this is Beth Bender. We're back for another episode of Top Branch! Today, we're diving into a topic that we get asked about a lot at The Dove Agency: employee profitability.
It's a sensitive subject for many business owners, but it's also one of the most important conversations to have if you want to build and maintain a profitable service firm.
The Magic Number: 40% Profitability
Beth Bender:
We’re not going to bury the lead on this one. Your employee profitability needs to be at 40%.
This is the target you should be aiming for to run a successful firm. It allows you to cover bottom-line expenses and still have enough money left over to take home. This benchmark is based on service businesses like interior design firms—or even our own agency, The Dove Agency.
So how do you get there? Ruth Ann is going to walk us through how to calculate it.
How to Calculate Employee Profitability
Ruth Ann Janson:
If you're ambitious, grab a pen and paper! Let's break it down:
Say you have an employee who bills at $150 per hour and clocks 100 billable hours in a month. That brings in $15,000 in revenue.
Now let’s say this employee has a salary of $80,000 per year. Divide that by 12 months, and their monthly cost is $6,666.
So the profit they generated is:
$15,000 (revenue) – $6,666 (cost) = $8,334 profit
To calculate their profitability percentage:
$8,334 ÷ $15,000 = 55% profitability
That’s well above the 40% benchmark—which means this employee is killing it!
Profitability Varies by Role
Not every employee will hit exactly 40%.
Ruth Ann Janson:
You may have one person hitting 60% and another at 30%. That’s okay. The key is to look at your firm holistically and ensure that, overall, your team averages out to 40%.
One role we see often overlooked in this calculation? Procurement Associates.
Don't Overlook Procurement Hours
Beth Bender:
Designers often bring in an assistant, intern, or junior designer to handle procurement—but don’t always track or bill for that time.
That’s a huge hit to your profitability. Procurement is a client-facing service and should be billed accordingly. If it's not, you’re leaving profit on the table and skewing your calculations.
Use the Formula for Hiring Decisions
Another powerful use of this formula? Hiring.
Beth Bender:
Let’s say you think you’re ready to add another designer to your team. Before you make that decision, do a quick back-of-the-envelope calculation:
How many hours per month do you think that new hire can bill?
What salary are they expecting?
Do the math and see if they'll fall within or near that 40% target.
This can help you make more strategic hiring decisions—especially when weighing salary expectations against your current workload.
Tools to Help Track Profitability
Ruth Ann Janson:
One of the best tools you have is that basic calculation we just walked through. But if you’d rather automate it, there are tools out there that can help.
At The Dove Agency, we’ve built a custom tool in ID Nest that allows you to plug in your data and quickly get a snapshot of your employee profitability across the firm.
There are other software platforms out there that do this too—but regardless of how you track it, the important thing is to do it monthly.
Monitor Monthly, Not Just Yearly
Beth Bender:
You need to write down your employees' profitability month over month. That way, when you're reviewing performance at the end of the year, you can clearly see their overall contribution.
Whether you’re crunching numbers in Excel or working with a bookkeeper or firm like ours, it’s critical to keep tabs on this monthly—not just quarterly or annually.
If you’re only checking quarterly, you might miss problem areas that are easier to fix if caught early.
Profitability as a Management Tool
Ruth Ann Janson:
This metric isn't just for leadership—it can be empowering for your team too.
Give your employees measurable goals, like a target number of billable hours per month. This helps them understand the value of their time and makes their contribution to the business more tangible.
Plus, in any kind of HR situation, profitability is a clear and objective metric. If someone isn’t meeting expectations, you have a black-and-white number to show why that conversation is necessary.
Final Thoughts and Quote of the Day
Beth Bender:
To wrap things up, here’s our business tip:
Watch your employee profitability consistently. It’s a simple formula with powerful insights. Whether you use a tool or track it manually, staying on top of it helps you avoid carrying costs you can’t support—and strengthens the overall health of your business.
And, of course, we always like to end on a quote. Today’s is from the great Warren Buffett:
“Your employees should be your biggest asset, not your biggest expense.”
Something to think about.
Ruth Ann Janson:
Absolutely. Thanks for joining us!
Beth Bender:
See you next time!