Labor Efficiency Ratio (LER)

Labor Efficiency Ratio (LER)

How to Use LER to Manage Labor to Higher Profits

Slides at: Simplenumbers.me/brightstar

by Greg Crabtree Greg.crabtree@ 256-704-0620

Simple Numbers... Straight Talk... Big Profits

4 Keys to Unlock Your Business Potential

? Your data is lying! - Why how you deal with Owner's compensation is distorting your data

? Profit matters more than you think ? How to set the right profit targets for your business

? Labor Productivity drives you profit engine ? How do measure it and improve it

? 4 Forces of cash flow ? Get the priorities right to set your business on a solid foundation

Labor Efficiency Ratio Defined

? Direct Labor Efficiency

? Value Added Revenue divided by Caregiver wages (does not include taxes and benefits)

? Management Labor Efficiency

? Gross Margin divided by Management wages (all non-caregiver wages)

? Every labor dollar must be held accountable to output either as an individual or a group.

? FTE (full time equivalent) employee is a flawed measure because it does not account for the unique output of each person. Even hours is a flawed measure. Output per dollar of labor is the only fair measure.

Why use LER?

? Expresses Labor as a multiplier, not a fraction ? Simplifies pricing and performance

measurement because the multiplier covers all costs if volume is achieved ? Makes forecasting and scenario planning quick and easy. ? Makes customer profit analysis simple ? Targets can be measured with each payroll cycle

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