Scaling Up Business with Bill Gallagher 008: Greg Crabtree - What Is the Labor Efficiency Ratio and Why Should You Care?
Greg Crabtree is a speaker, author, entrepreneur, and financial expert. In 2011, Greg published his first book, Simple Numbers, Straight Talk, Big Profits! where he shares his core principles on how to turn your business into a wealth building machine. Today, Greg and I discuss the labor efficiency ratio (LER) and what it means to your business.
Greg grew up on a chicken farm in Alabama and quickly realized that raising chickens was not something he was destined to do. At the age of 14, his mother took him to a CPA to have the family's taxes filed and he discovered a passion for finances.
If you were to get run over by a bus today, what would it take for your family to continue your business? Who could accurately replace you? Greg says there are two types of laborer categories: direct labor and management labor. Based on the role you play in your business and what category you fall in, you will have to find a person that matches your category type in order to successfully carry on the business.
By practicing this methodology, it helps you find a clearer picture of what your role is within the company. So instead of working on the business, you're working more effectively in the business.
Greg shares a quick example of applying this methodology in real time. One of his clients had $600,000 in revenue and 25% of that was profit split between two owners. However, their main issue was that they were having cash flow problems.
Greg understands that if you're having cash flow problems at 25% profit, then there must be something fundamentally wrong with the business. It turns out that the owners were only making 4% in profit instead.
Greg then worked with the owners on how they could increase their contribution margin and increase their numbers by $140,000. For this particular business, they had the right people, but they were just not getting the right kind of accountability out of them. After Greg gave them a new set of goals to strive for, which they hit flawlessly, the two owners ended up making 19% profit in their first year.
Greg believes, it first starts with holding the management team accountable and to define clearly what they must strive for in order to earn their wages or bonuses.
The work Greg provides is often above and beyond what you would usually receive from a typical tax accountant. Greg really strives to help optimize your business by using simple formulas and data to create effective and money-saving processes.
Interview Links:
Simple Numbers, Straight Talk, Big Profits! by Greg Crabtree
More Resources: ScalingUpBusiness.com: Learn about how growth coaching can help you and and your business see big results. Scaling Up Business Growth Workshops: Take the first step to mastering the Rockefeller Habits by attending one of our workshops. Bill on YouTube: Short videos to keep you Scaling Up.
Did you enjoy today's episode? If so then head over to iTunes and leave a review. It helps other business leaders discover the Scaling Up Business Podcast so they can also benefit from the knowledge shared in these podcasts.
__
Scaling Up is the best-selling book, by Verne Harnish and the team at Gazelles, on how the fastest growing companies succeed where so many others fail. My name is Bill Gallagher and I'm a certified Gazelles business coach.
We help leadership teams to get the 4 Decisions around People, Strategy, Execution, and Cash right so that they can Scale Up successfully and beat the odds of business growth success. Our 4 Decisions are all part of the Rockefeller Habits 2.0 (from the original best-selling business book, Mastering the Rockefeller Habits).