The TLM Productivity Analysis – What It Means
This analysis of a company’s key operating metrics
is created by reconfiguring a company’s P&L to TLM format. It also requires employee data, including:
- # of full-time employees and equivalents (FTE’s)
- # of billable employees – installers, programmers,
technicians, etc – and equivalents (BEE’s). Includes subcontractors.
- Average hourly wage of all BEE’s
hourly billing rate for all services
The key measures may need some explanation…
Sales Productivity is our term for annual
Revenues per Employee (RPE).
Direct Labor Productivity is a measure of annual labor revenues per BEE. Obviously, you must
track labor revenues separately from other revenues to calculate this measure. Then, divide by the number of BEE’s.
Efficiency is billed labor hours as a % of labor payroll hours. This measure is calculated directly from P&L
values. For a thorough explanation of how to derive this really valuable measure from your P&L – without looking
at a single timesheet – request your free copy of Fast-Forward's "How to Manage Labor Productivity" white
paper by e-mailing email@example.com.
Mix is a key TLM metric. Integrators derive income from three basic categories: Equipment, Install Parts, & Labor
(any other income sources – security monitoring, electrical, satellite commissions, reimbursements, etc – are
called Other). This has proven to be a tremendously valuable component for measuring and improving Gross Profits. The other
component in the TLM Profit Matix is..
Gross Margins. A key number here is GM before Labor Costs (the GPP white paper
offered above explains this incredibly valuable measure). I call this Top-Line GP and the target is 55%-60%. The Labor margin
is labor revenues minus labor costs.
Compensation Metrics. Direct Labor totals the gross wages paid to billable employees,
plus monies paid to subcontractors. Sales Commissions are self-explanatory, but it is worth noting that the TLM benchmark
is not the rate recommended for compensating salespeople. Rather, it is what sales commissions typically total inan integrator
environment, where few companies have a 100% commissioned sales staff. Payroll Taxes & benefits is an aggregation of all
“non-earnings” payroll expenses, including FICA, medicare, and benefits. Another really, really important number.
Finally, the GPP ratio is the most powerful indicator of profitability we know. Manage your way to a good number (2 is
awesome) and… You will make money!!
Major Operating Costs are not areas that need critical management in most
companies, but the total of Admin & Occupancy (monthly fixed costs) plus Sales Expense (a variable monthly cost) needs
to be managed to under 16% of sales, in aggregate. Sales Expense is a whole
bucket of sales-volume related expenses: fuel, freight, credit card fees, marketing, uniforms, small tools, T&E. Really
helpful to measure these as a % of sales.
Most of the integration companies I’ve reviewed – hundreds over the past nine years
– knew very few of these measures before we talked. It could be really valuable for you to consider a TLM Productivity
Analysis for your company.
You can order a TLM Productivity Analysis for your company, including a call
with Fast-Forward to discuss the findings, for only $297. To learn more about our "Fortune Teller I" analysis &
prediction package, click here.