Home > Leadership, Managing the Business > Managing in a Downturn – Part II – Staff Turnover

Managing in a Downturn – Part II – Staff Turnover

So, because you recognize my astonishing genius, you’ve taken my advice and developed an effective client management program that increased your revenue pull from existing clients and lowered your cost of sales.  However, its still not enough to meet your profitability targets.  So what do you do next?  As I mentioned in my introductory post to this series, consulting is very simple:  if you manage your opex, its either about top line revenue or personnel costs.  In this post, we are going to look at the cost issue. 

Why look at cutting personnel costs before finding new revenue sources?  After all, firing people exposes you to legal risk, emotional angst and long term reputation risk (I’ll discuss these in detail in another post).  Three reasons exist for looking at this first:

  1. Its faster:  You can reduce personnel faster than convincing clients to buy new services from you.
  2. Cost has to be productive:  If you are not getting revenue production out of your investment in staff, now is the time to make the hard decisions.
  3. Earn your salary: You should have a system that measures and evaluates performance as part of running a PSO. If you haven’t shame on you.  Get it done now.

So, how do you do this:

  1. Establish your targets and your plan
  2. Go after management first
  3. Communicate clearly and often

Establish Targets

Before you do anything, understand (based on your revenue forecast) what your personnel cost has to be to hit your target margins.  Assume you have a $1M revenue forecast with target gross margin of 45%.  That means, you need personnel costs (don’t forget to load it with taxes, insurance, 401K, non-billable travel, salaries, etc – all the direct costs of having someone working for you) of no more than $550K ($1M *(1-.45)).  If current costs are $700K, you need to cut $150,000 in costs.  If the average cost of an employee (fully loaded with direct costs) is $125K, you’ll need to layoff at least one, perhaps two people. 

However, before you consider layoffs, think about some other ideas.  Is your team sufficiently tight knit that everyone would consider reducing the variable comp to save the $125K rather than seeing someone leave?  Could you get savings from canceling non-bill travel activities?  Can you reduce salaries but still keep everyone together?  This subject was pretty well covered in a New York Times article so I won’t cover the same ground.

Once letting someone go is the option, what to do next?

Go After Management First

I’m in management, so don’t take this as a call for proletariat revolt.  My rational is pretty straightforward: 

  1. Management runs the company and gets a premium for doing so.  If they weren’t able to position the company correctly, they should be penalized by losing their jobs first.
  2. Management jobs cost you more.  You can get bigger economic gains from getting rid of fewer managers.
  3. Consulting staff has the knowledge of your products and customers.  They will lead you out of the downturn because they’ll be there to do the work as clients need it done.  They can survive without a manager; you can’t survive without them.

Any reduction in staff is painful, so how to you keep everyone positive?

Act Fast/Communicate Clearly, Early and Often

Once a decision is made to layoff staff (regardless of level), make the decision, then execute.  Don’t wait days or weeks – do it quickly.  The longer you wait, the more likely everyone will begin to find out.  Don’t delay because someone is key to a sales cycle or project – if they really are key, you shouldn’t be letting them go.  Just get it done.  This subject (how to conduct a layoff) is covered in a bunch of different forums.  One I liked recently can be found here.

Once you execute,  give the remaining team lots of well targeted information as early, and as often, as possible including how you made the layoff decision and who got let go.  Good communication is especially important in troubled economic times as, in the absence of clear information, people will make up their own stories (always negative) of what’s really going on.

With respect communicating to staff, I have two ways I like to see this covered:

  1. When times are clearly worsening, do a comprehensive meeting, email, etc that discusses:
  • Current company financial state:  Cover the good and bad. Be clear about your forecasts and the conditions on which they are based
  • Discuss the alternatives you are considering
  • Talk about what you’ve already done
  • Talk about the timeline for the next set of changes

Update this periodically in a similarly comprehensive fashion by comparing what was predicted, what you promised you’d do and what you actually did.

Then, periodically, send updates on:

  1. Sales pipe
  2. Staff performance (UTE, Realization, Goal) at the individual, group and corporate level. Include sales team progress against quota.
  3. Progress against overall goals

Remember:  you can’t over communicate.  Use email, blogs, text or whatever technology works best for you to get the message out frequently.  If you can, do company-wide meetings or phone calls as often as is feasible.  Also, don’t forget that a couple of lunch meetings a month with staff, where you connect personally, goes a long way to helping the message you want take hold in the way you want it to.

In my next post, we’ll take a look at finding new revenue sources to vector revenue up rather than down in a bad economy.


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