I have found that most agency owners are very generous people. They love the people they work with and want to create an amazing working environment. They are also very slow when it comes to firing an employee – whether it’s because the person isn’t performing at the right level or because billings have dropped and they just don’t need that person any more.
All of that is lovely. But, you are literally taking that money out of your own pocket when you make that decision. I can’t tell you how many times an agency owner has lamented to me, “I know I should let Carl go but he’s putting two kids through college.” Yup – and you are taking money that should be going into your kid’s college fund (or your retirement or investment account) and handing it to Carl’s kids.
Even more than that – by not firing an employee, you are putting your entire agency at risk, for the sake of this one person. Your responsibility is to run the agency in a fiscally sound manner so that the agency survives the ups and downs of cash flow, clients coming and going and other economic factors. I saw way too many good agencies just close their doors in the last recession because the agency owner stubbornly held onto too many people and didn’t trim overhead expenses fast enough.
One ratio that can help you stay in alignment is a rule of thumb we use at Agency Management Roundtable with our agency clients. On average, for every $100,000 – $125,000 in AGI (adjusted gross income = your gross billings minus your costs of goods sold) you should have one full time equivalent.
If you keep an eye on that ratio – you’ll have a pretty good sense of when you are overstaffed and at least at that point, you can make a very conscious decision about whether you are in a position to stay overstaffed for a period of time or if it’s time to cut back. This is also a great metric to use as your employees push you to hire every time you get a new account.
I know — when you have a great employee, it’s tough to let them go. But most agencies have at least one B player. A loss of business or even an existing client really cutting their budget may be the right time to make a change.
There’s nothing wrong with wanting to be a good and kind boss/person. But at least make an informed decision when you decide to stay overstaffed. Know what it’s costing you and have a a drop dead date — either enough business to sustain the current level of staffing by X date or else Y has to be laid off.
Firing an employee is tough, but if you don’t — pretty soon your pocket is going to be empty and you won’t be able to pay anyone.