17 October Direct and indirect costs of employing a salesperson October 17, 2018 By Reef Admin General 0 Do you know the impact engaging a full-time salesperson will have on your bottom line? When do they add value to your agency? The results may surprise you. Success in any business requires a sound appreciation of the cost pressures that have an impact on the bottom line. In agency practice, one of the major pressures relates to the employment of staff. Thinking about engaging a new full-time salesperson on a wage retainer plus commission? Do you know what impact it will have on your bottom line? At what point will the salesperson start to add value to the agency? The results may surprise you. Direct costs of employment When you employ a real estate salesperson, there are direct recurrent costs that must be met. 52 weeks wages @ $837.40 per week (minimum award rate) $43,545 4 weeks annual leave (accrued each year) $3,350 17.5% annual leave loading on wages and annual leave $586 Car allowance (top rate) $10,586 Mobile phone allowance $600 9.5% superannuation guarantee $4,137 Long service leave (estimate) $726 Workers compensation (estimate) $320 TOTAL ANNUAL COST $63,850 Total monthly cost $5,320 Therefore, as at October 2018, the estimated minimum direct cost of employing a full-time real estate salesperson over a 12-month period is $63,850 per annum. If the employment costs in your agency differ from those above (for example, if you pay a higher rate of pay or a lower car allowance), you can recalculate the total cost using those specific figures. NOTES: The figures assume no annual leave is taken in the year, so it accrues as an ongoing liability Personal/carer’s leave entitlements have not been included in the calculation, as the salesperson has worked 52 weeks. The mobile phone allowance assumes an employer payment of $50 per month (though this may vary). Long service leave is a contingency provision and as such will not be payable in all circumstances. The calculation is based on the salary component only. The car allowance is calculated on a vehicle up to five years of age. Workers compensation has been calculated on an industry rating of 0.494% of payroll (though this may vary slightly ii in different states and territories). Payroll tax liability has not been included in the calculation. If your agency is registered for payroll tax purposes, include the average cost per employee in the calculation. Indirect costs of employment At first glance, it may seem that recovering direct employment costs through generated commissions is the end of the story. But it isn’t, because it’s not only direct costs that impact an agency’s bottom line. Before you can say a salesperson is ‘adding value’ to the agency, you need to consider the additional indirect costs of employment. These are the central and unavoidable expenses that every single agency must confront to keep the doors open. Indirect costs include things like: Cost of office space Depreciation of office equipment Financing and interest expenses Administrative support Accounting, legal and other professional services Training and development IT and software support Telephones Electricity Rates Office amenities, stationery, printing and postage Insurances Advertising Business and personal promotion. The list of indirect costs is extensive. While it’s preferable to prepare a thorough and accurate assessment of costs to calculate a saleperson’s ‘break-even point’, it’s often more convenient to simply use a standard percentage. Break-even point It’s considered that direct labour costs account for between 35-55% of the total costs of employing a salesperson. Taking the mid-point between these figures – that is, 45% – then the employee costs your business a minimum of $11,833 a month (or approximately $142,000 per year). These figures represent what is commonly referred to in our industry as the salesperson’s ‘desk cost’ or ‘break-even point'. Importantly, the 45% figure will vary depending on the size of the sales team and operational arrangements within your business. To determine the contributions of individual salespeople to your business success, your agency may benefit from a more thorough examination of its configurations. Once you’ve calculated the break-even point, you can conclude that unless a salesperson generates minimum sales commission in excess of this amount, they’re having a negative cost impact on the business. Related When does a salesperson start to add value to my agency? Success in any business requires a sound appreciation of the cost pressures that have an impact on the bottom line. In agency practice, one of the major pressures relates to the employment of staff. Post-employment breach costs new employer A recent decision by the Full Court of the Federal Court of Australia marks new territory in the scale of remedy for post-employment breaches with a new employer hit with a $6.5 million order. REEF President gives annual report at AGM At the recent AGM, REEF President Fred Andriessen presented his first annual report to members and shared some of REEF's big wins during 2016. 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