Revenue per employee: The relationship between construction marketing, sales and business efficiency

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employee productivity chart

What is the optimal level of productivity per employee for your business ? From "Setting Marketing Budget For Optimised Client Acquisition" by Tom Varjan.

This is a topic for which I don’t have satisfactory or conclusive answers, but which raises some important questions.  Is there an optimal architectural, engineering and construction business size, where the highest revenue per employee correlates with the highest level of job satisfaction — and how do these metrics correlate with marketing budgets and effectiveness?

At an Ottawa presentation, Michael Stone presented a chart showing that revenue per employee peaked at three, then declined until settling out at about 10 to 12 employees.  I’ll see if he can provide the source material and background for that chart, but the supposition is that at three, smaller organizations achieve the highest level of efficiency by diversifying the work around different talents, with the highest level of satisfaction by giving individual employees the freedom to avoid pigeonholing and narrow duties.

Another intriguing correlation, which seems to be easier to measure and apply for very large and high-technology businesses, is that high “percentage of revenue” marketing budgets coupled with high revenue per employee is a sign of incredible profitability.  Take some high technology businesses such as Google and Adobe for example.

Adobe has an incredible 33 per cent of revenue marketing budget, according to this interesting blog posting by Tom Varjan.  This “produces $488,056 revenue per employee and $118,856 profit per employee (24.3% pre-tax profit).”  Microsoft’s 21 per cent marketing budget results in “$663,956 revenue per employee and $194,297 profit per employee Microsoft is the second best (29.2% pre-tax profit).”

“Based on data from Google Finance, at $1,080,914 revenue per employee and $209,624 profit per employee Google is the best performing high-tech company (19.3% pre-tax profit),” Varjan writes.  (He isn’t clear in his posting of Google’s percentage marketing budget, but implies it is far higher than the conventional small business, which might spend less than four per cent of revenue on marketing — and I think in construction marketing, even four per cent is high.

Varjan argues that many smaller businesses, if they work on business development at all, focus on expanding an ill-qualified and relatively ineffective sales force at the expense of effective marketing.  An army of inexpensive telemarketers (or canvassers) might be relatively inexpensive and track directly to revenue production (third-party marketing services can be more nebulous) but the result is irritation and the inability to reach higher-value decision-makers.  (Sure, some ill-qualified telemarketer is actually going to (a) reach me and (b) cause me to want to do business with the organization the telemarketer represents.  You might as well live in a fantasy world.)

The thesis I wish to check is this:  Can a lean, well managed construction business with a highly productive labour force, blow away the competition by allocating a seemingly high percentage of current gross revenues to marketing, defying the bean-counters who might argue that this type of expense is a waste and can easily be trimmed?

I don’t have the answer, yet, but there are some intriguing examples on the radar scope indicating potential of this concept:  Trim the (employee) fat and expand your construction marketing effectiveness, and you may have a truly powerful business model.  Do you have your own thoughts?

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