Labor Efficiency Ratio Decoded

In the conclusion to our three-part series on crucial financial reports, we welcome back financial expert and author Greg Crabtree. We pick up right where we left off with an explanation of labor efficiency ratios and their critical role in profitability. Greg talks about the economic shift from what he calls the “Participation Trophy Economy” of the last 20 years to the current “Street Fighter Economy,” and the need for competitive businesses to adapt their strategies.

Greg breaks down complex financial concepts into actionable insights for law firm owners. His practical advice on implementing and interpreting labor efficiency ratios provides a roadmap for increased productivity and sustainable growth even in challenging economic times.

“Entrepreneurs think they can grow their way out of lack of profit. And we call that, stage one of denial. So you got to fix it before you can grow it.” – Greg Crabtree

Key Takeaways

1. Understanding and implementing the 2:1 labor efficiency ratio
2. Differentiating between direct labor and management labor
3. Strategies for balancing high and low efficiency across different roles
4. The challenges of having ‘protected species’ on payroll and the need for fair evaluation
5. Using the calendar as a productivity tool instead of to-do lists

Links & Resources

– Labor Cost Ratio Episode 67 with Greg Crabtree

– ‘Simple Numbers, Straight Talk, Big Profits’ by Greg Crabtree

– Ep 63: How To Hire (And Keep) A Superstar Staff with Nichole Hanscom

– Profit First for Lawyers curated resource page: Labor Cost Ratio worksheet

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–  Buy your copy of Profit First for Lawyers

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