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Yearly gross dollar output per employee

11/14/15       
Cabmaker Member

I am curious to hear from other small shop owners what is their average gross dollar output per employee. I remember years ago it was averaged around $100,000.00+ per employee. I am curious in todays dollar, what most employers expectations are.
Thank you all in advance

11/14/15       #2: Yearly gross dollar output per empl ...
Paul Downs

We're currently at about $165,000. For my talk in Vegas last year, I graphed out how that number grew as I made my shop more efficient over the course of 28 years. See below.

If you're not understanding the graph, the red line is the number of employees and the revenues is the blue polygon. They cross at $100k/person.

I want the red line to be below the blue edge and growing slower than the blue. You can see that this has been happening in the last 5 years, as I concentrated on making operations more efficient.

Good question!

Click the link below to download the file included with this post.

PDC_RevsPerEmployee1986_2014.pdf

11/14/15       #3: Yearly gross dollar output per empl ...
Bob

Paul, are you including ALL employees (non-produciton too)?

Are you including yourself, sales, engineering, book-keeping?

11/14/15       #4: Yearly gross dollar output per empl ...
Larry

I see considerable variations in our shop. Partly because we don't layoff when work slows. A couple of slow months can greatly affect the #. I use total employee count. It has ranged from a low of 125K to a high of 170 last year. Seems like a shop to shop comparison isn't very valid. How many $ of out sourced stuff was sold?

11/15/15       #5: Yearly gross dollar output per empl ...
A Nonimus Member

Two of us, with one at full time in the shop, and the other about 10 to 15% in the shop. About 50 hrs a week for 2500 per year.

We will be at about $220,000 for the year in revenue. We charge about $80.00 per hour, and overhead is about $58.00 per hour on that production. This is all costs inclusive, providing about $75,000 for the owner, and $52,000 for the employee.

We make custom architectural work for the residential market.

11/15/15       #6: Yearly gross dollar output per empl ...
TonyF

I find this topic an endless source of fascination, as it is always a comparison of apples to oranges, and there is important information that is always excluded in such a high-abstract concept as revenue-per-employee, such as business location, employee wages, costs of materials, debt load, subcontracting costs, total overhead, etc., etc..

Some companies need to generate more revenue than others in order to have the same annual net-profit-per-employee, which might be the better question, if you are in it for the money.

Rather than engage in some sort of dollar-per-employee envy, owners might ask themselves if, after doing what is reasonable towards efficient production, they are content with the return on investment, and the lifestyle that their business affords them.

To Paul Downs:

I have not read your book, but I was a huge fan of the “You’re The Boss” blog at the New York Times. I learned a lot, from your posts and those of others, and of course the comments from readers were priceless. It’s too bad the Times chose to not keep it going after Loren Feldman left for Forbes.

First, congratulations on keeping a woodworking business viable for 30 years, and thank you for tracking your data and sharing it.

In your graph, is the fact that the revenue per employee crosses at 100k per employee indicative of any ratio of profit or ROI, or is it arbitrary? Based solely on the graph, one might easily jump to the conclusion that your business was unprofitable until the middle of 2004.

Was there an increase in expenditures that made it necessary to have more dollar output per employee, or is this totally a function of efficiency? How did all of this coincide with your departure from custom furniture and your current focus on conference tables?

TonyF

11/15/15       #7: Yearly gross dollar output per empl ...
Cabmaker2

I'm with Tony on this one.
Comparing dollar volumes with worker hours doesn't provide any more nutrition than the annual Cabinetmaker Magazine survey of "How much would you charge for this kitchen".

A much more useful dialog would be "How long does it take you to make this drawer?" With that discussion we could compare the efficacy of different methods and technologies and we could then use this information to be more successful within our own market niche.

Like Tony I also miss the NYTimes Boss Blog. Paul's writings on that space, (and particularly the comments from the peanut gallery) were very pithy and gave you much to think about. I learned a lot from the NYT blog. Paul is currently contributing to Forbes but the response on that forum is almost non-existent and hardly worth the read.

When the NYTimes killed the 'You're the Boss' blog I shifted my newspaper dollars to the Wall Street Journal and I read it cover to cover a couple of times a week. The business section had an article recently about how the oil drilling industry was embracing Lean thinking finally. The drift of the article was now that the gravy was all gone they had no choice but to standardize operations in an attempt to get their costs low enough to make the oil economic to harvest. Oil prospecting is a somewhat inelastic industry and could be a harbinger of things to come for our currently prosperous industry.

Which is why we would probably be better off discussing the efficacy of different production techniques than red herrings like how many dollars of production you get per worker hour.

11/15/15       #8: Yearly gross dollar output per empl ...
Amy James

We average $450k/year gross with 3 employees, so about $150k/year per employee.

I often wonder how scalable those numbers are? If I could add 2 more guys at $150k/year with the same overhead, I could make another $150k in owner draw. But I'm guessing it doesn't scale that way for my business.

11/15/15       #9: Yearly gross dollar output per empl ...
Family Man

Two Man Shop. 606k a year in revenue or 303k per man. I do outsource about 75% of my doors.

I'd like to know an approximate cabinet boxes, jobs, average amount of a job sells for, and so many other metrics that would make this measurement more useful. Most importantly how much the owner is taking home for this figure.

So I'll show you mine if you show me yours.
Average frameless cabinet boxes per month: 80

Average amount of jobs per month: 3

Average sales amount per job (not average per say, just typical sweet spot): 10-20k would make up 50% of our jobs with about 25% in the 5-10K range and 25% 20k-50k.

Take Home (Salary & Profit): Aprox 150k

Average Hours Worked Per Week: 60

All these numbers were drastically different in bad times. Still busy but hours worked slightly higher then and take home much lower (50k or less). Less outsourcing then. It has taken a dozen years to get the kinks out of the system in the school of hard knocks. Would love to work less, but I'm not interested in bringing on more help. Too much regulation and too much liability, too hard to find good people. I'd rather deal with the hours then the alternative.

11/15/15       #10: Yearly gross dollar output per empl ...
Larry

Family: "So I'll show you mine if you show me yours." That's what I told her, but it didn't work.
Sounds like you have a well setup box making operation. Care to elaborate?

11/15/15       #11: Yearly gross dollar output per empl ...
Family Man

Not sure what you want elaborated on.

We operate pretty old school. $2k SawStop tablesaw cuts all of our boxes. $5k edgebander bands all our boxes. A Dewalt $50 corded drill drills all of our shelf holes.

Yeah, we pretty much do everything backwards of what the industry tells you to do.

We sell for too little. Don't use technology. Don't advertise or market.

What we do is call folks back immediately. Are always on time. Sell at a price point where nobody in our price point is even remotely close to our quality level, which allows us to be in extremely high demand and set the terms. Have a great looking finish. Tell problem GC's and designers no thank you. And squeeze every last drop of efficiency out of our system without going into debt. Lastly, we treat our clients and our vendors like we'd want to be treated.

But boxes, no. I imagine most everybody on Woodweb could knock out more boxes per week.

11/15/15       #12: Yearly gross dollar output per empl ...
Cabmaker Member

The issue of discussing " how long does it take to make this drawer" doesn't necessarily suit those of us who don't believe in making drawers...or doors..or whatever else we can outsource. Less labor costs (a big variable) less machinery, less rough inventory etc. My shop had similar numbers to Family Man. 2 person shop. Myself and a finisher / assembler. It also took me many years to find the right suppliers and fully integrate their products into my manufacturing processes. A CNC was an absolute must. Improvements in their order entry software only made things better. I don't believe the higher dollar per employee yield necessarily translates into higher net margins as it's just a trade off- paying someone else to do your work. But the value I received that meant the most (aside from profits) were more control over the quality of my product, moving a greater volume of product with less effort,
maintain a reliable schedule with my clients. One other benefit of outsourcing- more time spent producing income and less time spent managing people!

11/15/15       #13: Yearly gross dollar output per empl ...
Cabmaker2

Cabmaker,

In your case the emphasis would not be on how long it takes to build a door or drawer box but instead maybe on how long it takes to load a sheet of material onto your CNC or check in a batch of doors to see if they meet size & quality requirements. The point is if you have labor in your shop they are performing labor activities. These labor activities are probably very similar to those of other shops that use CNC and rely on outsourced product.

If you use exclusively one type of sheet good in your CNC operations then the loading requirements might be different than if you used several types of sheet good. If you make use of fall down from previous jobs then your methods for inventorying this fall down would be different than a company that throws all scraps in the dumpster at the end of every job.

11/16/15       #15: Yearly gross dollar output per empl ...
Ted

$780,000 Yearly Revenue

5 employees (not including myself)

$157,000/employee. (That sounds better than it is, I won't tell you our cash position...)

Outsourced finishing, dboxes, doors. However we do our own installation.

Paul, I love that graph.

11/16/15       #16: Yearly gross dollar output per empl ...
Alan F.

Historically this number has measured sales dollars per production employee.
We deduct install and buy outs and divide by total number of production employees.

My bid form does a cross check on dollars per production employee just for ratio analysis.

The dollar amount is useless as a comparison to other shops because of the wide variety in local sales prices and the wide variety of material costs and types of work. The NASFM (now A.R.E) used to do complete ratio analysis on members numbers.
A-

11/17/15       #17: Yearly gross dollar output per empl ...
Cabmaker Member

Cabmaker2
You're delving into minutiae
I just asked a basic question.
Fall off is priced into the job as a percentage of waste, therefore it goes in the garbage, however when you're cutting mostly squares and rectangles, waste is at a minimum. When I referred to rough inventory I was referring to hardwoods. Because I outsourced all my doors, drawers, molding etc. I did not have to inventory any hardwoods. Only sheet goods. Exclusively plywood- either prefinished maple ply, or plywood with cabinet liner. All exposed sides went into a vacuum bag with whatever veneer was chosen. I made a decision long ago. I could spend my time managing people, inventory, processes etc, or I could spend the bulk on my time making product (money)
Two important words- variables and mitigate. Eliminate as many variables as possible and mitigate risk. It took years to go through many many, suppliers till I found the right ones. Once that happened, the act of checking in product became a simple act. Any product not to spec was replaced without question and expedited to me. No more having to ask an employee how they managed to screw something up. And of course you can't recover that time spent. Plus the price is fixed (no more variable) The objective was cabinet boxes- make as many boxes in a day as possible. By embracing CNC technology (unlike Family Man) all exterior parts were finished prior to assembly (much more efficient and better result when everything is finished flat as opposed to finishing a box) All outsourced doors, drawerfronts, molding etc. came in pre-finished, so again many variables normally associated with a shop that does it all are eliminated. Don't mean to make it sound simple. It took many years to work out all the bugs, and this might not suit many others. But it works for me. Sorry to go off topic and I appreciate everyone who has responded. I also realize the only metric that really counts is a P & L statement

11/17/15       #18: Yearly gross dollar output per empl ...
Cabinetmaker2

Cabmaker,

I wasn't proposing that you spend any time on minutia. My specific observation was that a comparing the ratio of labor to sales from one shop to another yields not a single iota of nutrition. As Tony pointed out without controlling for all the other variables this ratio is meaningless.

Paul's chart, however, is very useful as applied to his company. He can use this compare the results from different strategies within HIS company.

Comparing labor hours to produce a specific task (no matter what the task is) has some actual significance because this information could potentially provide a specific call to action.

11/17/15       #19: Yearly gross dollar output per empl ...
Cabmaker Member

Cabmaker2
To be honest, my initial question was just a curiosity, not a means of making comparisons. When I started in this business over 30 years ago, I read at the time that that industry average was around 100k per employee. Not yet an accomplished cabinetmaker and knowing very little about business I saw that figure as a way to challenge myself and as a goal worthy to surpass. What I have also learned through the years is you can make your life as complicated as you want or you can be open minded and embrace other ideas to simplify things. By eliminating so many processes in my shop (and outsourcing) and limiting ourselves to what we did best (and were best equipped for) I also eliminated the need for so much analysis.
If a majority of the costs associated with a job were fixed (outsourced) it became easier to track productivity. No real need for graphs or other deep analysis. One hour of average total labor (with all associated shop costs built in) went into every cabinet. (some were faster, some slower depending on size and complexity, but one hour average worked)
It was more about assembling the package as opposed to doing every single process. There were almost no variables or unknowns with this approach. I keep referring to Family Man because he also takes a similar simplistic approach. (I just take it further embracing more technology) And I do appreciate the need for analyzing specific tasks.....that's what led me to draw the conclusions I came to. The bonus to all this was I could do complex projects without the liability of underbidding. Again, with fixed outsourcing costs, and just having to build the boxes (and countertops) and applying the proper markup, I eliminated much of the time it takes to even try to come up with realistic pricing, and spend more time producing.

11/18/15       #20: Yearly gross dollar output per empl ...
David Sochar

You can get lost measuring data. When you are measuring how much time it takes to measure.....

We all will do better by picking a few metrics and measure against ourselves. After all, we are our own toughest critics, so who better to compare our shop to?

Short hand comparisons are handy for gross info handling, but it is hard to get any Apple to Apple comparisons that are really meaningful. We almost never do the same thing twice. If we do, we then repeat it ten to forty times, but then never do that job again.

I keep all the data for input for future estimates. As one previous poster said, the goal is to not underbid, so you can bid with confidence.

11/19/15       #21: Yearly gross dollar output per empl ...
Rob

We Have 11 Persons in shop
2 Technical persons
2 Installers
1 Production Manager

Sales just over 3Mill

= $188,000 / Production Employee

11/19/15       #22: Yearly gross dollar output per empl ...
Paul Downs

Sorry it's taken me so long to put in my two cents. But the question has developed in interesting ways. So some more thoughts:

• $/employee is a number that, like all many metrics, doesn't tell you everything, but also doesn't tell you nothing. As can be seen in the discussion above, people start picking apart why it might or might not be applicable to their business, and we learn something about how different shops are organized.

• In my chart, I include all employees including myself. I prefer this to just the production employees, as I think that it's a better measure of the overall efficiency of the organization.

• Clearly outsourcing is going to have a large effect on the number.

• That said, I've asked for this ratio from a lot of shop owners, and I've never heard a number lower than $80,000 or higher than $200,000 for shops which don't outsource.

11/20/15       #23: Yearly gross dollar output per empl ...
Cabmaker

Paul
Excellent comments. The greatest benefit that I received many years ago when I first read about the subject of dollars per employee was that it stimulated my thinking, and created goals to surpass (even though I really had little understanding of business economics at the time). It was also the start of the transition from becoming a cabinetmaker to a businessman. Making quality cabinets is only one part of the equation. Everyone must choose what works for their situation. I chose outsourcing because my shop was in Key West and labor was in short supply and very expensive. I saw my suppliers as an extension of my shop that gave me the ability to offer just about anything without having a large skilled staff (that just didn't exist) And it absolutely allowed me to achieve higher revenue growth with less staff, and while my net margins didn't grow appreciably my margin dollars did.

12/24/15       #24: Yearly gross dollar output per empl ...
Dan Minzner Member

Website: http://www.minzner.com

While I rarely post on Woodweb this is always an interesting question, What I can tell you is that over the years I have yet to find the "Goldilocks" size. I've been a one man shop and currently I have 45 employes. What I can say is that the larger your business becomes the lower per employee volume will be. This is merely one metric to measure the profitability of a business. If an eight man shop can do 150K per person but requires tooling and equipment that has a very high carrying cost much of the profits can be eaten by debt. Maybe the smaller staff with higher tech requires most of the employees to be highly compensated.
I made far more money for myself when I had a handful of guys and could do all of the oversight. Lines of communication were short and it was very easy to communicate and get an idea across. A highly custom business does not have an economy of scale light a straight up box shop does. Having project managers, Assistant PM's, Production manager, HR and purchasing agent is a big burden and it is nearly impossible to spread the cost of the level of oversight that some work requires over a small amount of employees.
If I pull out the PM's, drafters and all the other support staff we hit some good numbers on the guys that strictly build and install.

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