The best advice that you’ve probably never taken is to hire people to do the work for you. I’m guilty of it too, for two reasons.
One, having people work in your business is like hiring a nanny to raise your kid. It’s hard to find people you can trust to do a good job. Two, employees are way more expensive than you think.
To figure out the real cost of an employee, I took a look at 20 of the world’s largest companies to see how much they’re spending per employee.
Calculating Average Employee Cost
I determined cost of running a company per employee by dividing their operating expenses by the number of employees. To calculate the operating expenses, I subtracted their operating income from their total revenue.
I found all of these numbers on Yahoo! Finance. Yahoo! gets their stats from the Form 10-K’s that these companies file quarterly because they’re publicly traded.
These are the latest stats for these companies over the last year as of March 31st or April 30th, depending on their fiscal year.
Average Employee Cost
It’s hard to believe that McD’s spends four times less per employee than the next cheapest company on this list, but somehow they do. I even checked their 10-K and recalculated, twice.
The lesson? Create jobs that can be filled with inexpensive labor and refine every process into a repeatable system.
It’s not like every Apple employee walks away with a cool million at the end of the year. Rather, Jobs creates a culture that costs $1.2 million per employee to maintain.
The lesson? To hire the most talented people in the world, you have to spend more than any other company in the world.
By the way, Steve Jobs has a $1 salary. Cool, huh?!
The point IS NOT that you should be paying your employees $400K per year. Rather, for every employee you have, there are lots of other places you should be spending money to grow your company.
In fact, most of that $400K is overhead and costs of goods sold. Take these costs into consideration and adjust your prices accordingly.
And if you’re thinking, “Oh these are just for the big guys… Doesn’t really apply to me.” Last week I talked to the CEO of a $6.5 million company with 50 employees. If we assume a 10% profit margin, the cost per employee still comes out to $117,000.
Smaller companies spend less per employee, but $100K is still a lot of money.
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