Bonus with Purchase: Adjusting your MAL # with employees and contractors
Hello, everyone welcome, teo, our bonus lesson adjusting your make a living number for employees and contractors. So in less than twenty two, we talked about your production strategy, and you may have come to that brutal realization that you make a living number, you have more production hours than you can possibly dio in a day or a week, right? So you went through that lesson and you figured out, you know, do I need an employee, whether it's for production or whether it's for non production and so we want to do now is figure out, how does you make a living number change if you're hiring employees? I know a few people kind of budgeted that in early, but in case you didn't, we want to talk about that in this bonus lessen the other thing we want to do is actually really run the numbers to see how much you have to make to make an employee pay for themselves, because I think one of the things that people think is, oh, I have to make so much more money and a lot of times if you've got an em...
ployee in and they're really efficient doesn't take that much for them to pay for themselves, right? So the first thing you have to figure out is, are you hiring an employee for production? Or non production tasks because it is going to change a little bit how we calculate this so we're going to actually just run through both scenarios in this lesson. So scenario one you're hiring someone to help you with production, so what we want to do now is first figure out how much does your employees cost you an hour now, how much you're paying them an hour, how much they cost you because what you're paying them an hour there it's always going to cost more, you have to add in taxes, workmen's, comp, insurance, whatever it is. So when you're running these numbers, you always want to talk teo, a local expert, your accountant, your lawyer, someone in your local business community who can give you that solid piece of advice, but for now we're just kind of kind of guesstimating around up. So for instance, let's say you're paying someone fifteen dollars an hour, they actually cost you an hour is probably somewhere between twenty and twenty five, depending on where you live, so for now, just kind of round up with and talk to someone get to get those specific costs, then you wanna figure out how many production hours are you going to bring that person on in a week and last year really desperate I would recommend trying to bring them on just for part time to start right tested out see how it works see if it's going to work you may be able to bump them up you may bring in multiple employees whatever that is but how many production hours will that person work a week and then how does this change your make a living number so let's say for example, you're bringing in an employee of fifteen dollars an hour right there true cost per hour maybe closer to twenty five here is going to bring him in ten hours a week to start so their costs per week you know, two hundred fifty dollars so that would mean that the addition to your make a living number they're total annual cost about thirteen thousand dollars right now this also doesn't factor in things like if you have to buy new equipment or other pieces like that but a lot of those I would probably just budget into your you know, additional business expenses so that maybe other slight additions to make a living number but basically just their salary and the costs associated with their salary in this scenario we're looking at thirteen k now how many products can your employees produce in a week or if they're not doing start to finish production? How many extra products can your business produce a week as a result of your employees right? So it might be that they're just doing piecework but the combat capacity that they add on is that you could make an extra fifty pieces a week that you wouldn't have been able to get done if they weren't there right? So how many pieces a week of production do they add and then how many products do you need to sell to hit your make a living number? We do this another another lesson tonight it's one of the best ways to kind of work backwards and see if you make a living numbers realistic what's the number how many products do you actually have to sell to get there right? But then how many products do you need to sell just to pay for your employees right the employee costs per year and then divide that out by now this's really ballpark it's not a perfect system but divided out by your average product price minus the material costs right? So really we're making sure you're paying in their labor again if you wanted to run this in way more to detail you could but for right now we're just kind of trying to make sure that we're in the ballpark, right? So how many products do you need to sell to pay for that employee and how many products do you need to sell a week to pay for your employees right? So divide that out by fifty to so in our scenario that we were looking at you know, if the employee costs us thirteen k year and let's say our average product costs one hundred dollars, ten of that is material one hundred forty five pieces sold to pay for the employees or three pieces a week, and if we go back to that first question, right, how many extra pieces does the employee pay for? Maybe adding that employees they could produce five, ten, twenty additional pieces a week for the business and you only actually to sell three of those just to pay for that, right? We start to look at it like that, it makes it all seem a little more achievable, right? And again, these are all made up numbers. You're gonna have to run them for you, right? And if you're hiring an independent contractor, really, you just want to look at how much does it cost them to make a peace? Because technically that's kind of the definition of a contractor is that you're paying them per piece, not per hour, right? If you're paying someone per hour at some point, someone the I r s somebody is going to come in and say, you know, even though they're not working out of your space, this is not the definition of a contractor, though. The definition of an employee and you need to be withholding and paying taxes and all the other good stuff, right? So really if you're working with a contractor, they should be giving you a per piece rate and then you just want to figure out how much does it cost them to make the peace? How much can you sell that piece for? How much additional profit does that get you right? But the other scenario and in a minute we're goingto hot seat one or two people right? So we could actually run these numbers for real, but in the other scenario you might hire a non production employee, right? We took a look at all those areas of your business that are on your stop doing list and it may be that the best fit for you is not to hire someone for production right off the bat, maybe it's to hire someone to pack up orders and take them to the post office, right? So this might be a scenario for you, so we're going to start the same way. How much does your employees cost? An hour again? They're hourly rate plus those additional costs, taxes, insurance all that you know, workman's comp all that good stuff, right? And then again, how many hours will that person work a week and how does this change or make a living number so I actually just ran the same numbers, but now we're just making the assumption that this person is non production versus production, right? But so let's say this person is adding thirteen k to make a living number, so now what we want to ask is since we're hiring them for non production, the idea is that it's freeing up more time for you to do production right? So how many more production ours does this give you a week and that's really all we want to look at in this number because remember production ours are your billable hours so doesn't help you if you hire them for ten hours a week and then you spend that ten hours like checking your email, right? The idea is that how many extra production ours and it might not be ten, right? You might hire them and they might give you they might work ten hours to free at that time for you and you might spend sick on production and four on marketing, right? So doesn't mean that you're getting all of that back in production, but in terms of our billable hours that's what we're looking at right? Because we want to up the amount that we can produce so again how many more products would you have to sell to pay for that employees and how many more products could you produce with an extra production time right so again, if this employee costs us thirteen k on our products price is one hundred and the average material cost is ten in that year we need one hundred forty five pieces sold to pay for the employees and three pieces per week now what you may find in running these scenarios is that actually hiring someone for non production help and give giving yourself a little more production time may make you more efficient right? If you hired an employee for ten hours a week, maybe they're making you know five, six, ten whatever pieces is a week but maybe in that same amount of time you could make twenty right because you're faster you've been doing it longer or maybe you know by hiring someone for non production ours you khun dio six extra hours of production and make the same amount as if you were hiring someone else to do ten hours of production and then you've got four extra hours for sales and marketing right so run these numbers in both scenarios because it may be that the better way to get your make a living number is not to hire production help at least not at first right maybe it's to hire some of that other stuff all right so let's go ahead and do a couple of hot seats who wants to jump up here and run some numbers I know at least it wants to go you have you're excited to crunch numbers oh uh all right let's get to our cheat sheets here. So what are you hiring for? Are you hiring for production or non production? Do you think first off the bat what's the dealy one employee at a time okay, so right, because we know that you have maur production hours then they're physically are in a week like you would have to work thirty five hours a day, right? We figured so we have to hire someone for production alright and then how much do you think they're going to cost you an hour so their salary plus what do you think you would pay fifteen you pay them fifteen an hour? Probably so then let's just say so they'll cost you twenty five just kind of ballpark that yeah, and in how many hours you would hire them for a week you need a lot of production hours where you go I want to where do I need teo? Well, to meet my so you were kind of working, you're make a living number right in sort of a three year plan, right? So let's say that we're just trying to do it to hit you're here one goals so how many hours I think we talked about ten a week, okay, just a start see, you're doing ten hours, okay, perfect, so so we actually know because it's the same as the math we've been doing this adds thirteen k right here make a living number so what's your make a living number and let's let's do the one of that year one goal right? We're not going home way up to your throat I think we shouldn't third so a third of three hundred fifteen with one hundred and five hundred five and we're adding that on right so you so now you're one hundred eighteen k right? So how many pieces do you have to sell a year your average bag selling price point to get to that one eighteen though one hundred eighteen thousand divided by weii did the wholesale three thirty three so you have to dio three hundred fifty four pieces right bring that in my fifty five that is about thirty a month. Okay, okay yeah so in that ten hours a week how many pieces do you think having the employees could boost you to your production? How many are they making or how many extra pieces air they generating so I was here them cut you're having them cut right? The sewing is really quite hard right? So you're having them cut. So how many bags if you didn't have the employee honey back do you think you could produce a week um at four hours a week and I put my thing at a forty hour work week so ten so you right now would be making ten so if we add in this employees to do the cutting how many bags do you think you could actually get two a week if they're taking out if they're spending ten hours cutting for you? I know there's a lot more than doubled because I had somebody just for me so you think you could change that too like twenty five twenty to know I think twenty five perfect it goes quite high right? So that as you were in extra fifteen pieces a week and really so terrible we'll see right there that's a perfect example, right? We want to use that okay, so the employee is going to add showing my nose here okay, so they would add fifteen pieces but to pay for them so they're cost per month so they cost you this month of this much a month, right? Okay and you know you have cell thirty bags now they're getting you an extra fifteen bags a week right? Then you're actually getting sixty more bags a month and you only need to sell basically four bags to pay for that, right? Yeah that's so right so you only have to sell form her bags a month to pay for them but they could help you get an extra fifteen bags a week, right? Yeah that's really good that's absolutely helps us there perfect. So yeah, so years is the case where adding a little bit to your make a living number I could have a huge impact on your bottom line right? And you may end up once you start doing this, you may realize that the amount that you sort of originally arrested in estimated in for employees you may not need as much as you want, right? Or you may not need as much production time as you thought you could get someone who's really good and efficient cutting especially if your weakness that's where we guess you could really actually and this could really help bring you make a living number down on a lot of ways it's everything I definitely cutting is my achilles perfect if yemeni was really right someone was really good at that and they could do it and there were people like who write their support meticulous they wouldn't do it that could make a big difference for you and in big lot itself and in big lots also right way more efficient just having a table, right? Right, right exactly. So now you can start adding right what equipment do anything in a bigger table so there are few purchase things obviously again that come in but I think you can see right how absolutely worth it this number is so for you guys you know, listening at home run through these numbers. Look at this. See how this scenario changes on and remember that you also have. You know, if you're getting this bonus video, you also have that bonus spreadsheet for your make a living number. Season. Go in, figure out you know how many hours a week, how much the employees going to cost you. Plug that stuff into your spreadsheet and see how that changes you make a living number as well. That's it for this bonus lesson.