Average Net Profits per Manager is a financial metric that calculates the average amount of Net Income a business generates for each of its managers to give insight into managerial impact on profitability.
Primary Implication
Poor profits signal weak management. Demand results from managers, reward success and replace those who fail. The lower your net profits average for your management team, the more likely you are to waste money on managers who are not carrying their weight. This means you are spending more on employee wages and salaries because the people working for your managers aren’t benefiting from the oversight and support of a competent manager.
Correct this by holding your managers accountable for the results their authority is tasked with creating. Reward them for their wins, coach them through their challenges, and bounce them from your company when they don’t respond to your coaching.
Overview
Your management team exists to help you manage the people you hire to generate that produce profits. Your managers are likely your most expensive employees have a cost. They only benefit you when they help your employees collect more in sales than the amount it costs to keep them on the payroll. Put another way, the more effective your management team, the greater your profit return.
It’s essential to look at the change in your Average Net Profts per Manager since these are the employees that impact the amount of money you hold onto from each dollar sold and collected. If they aren’t helping your employees be more productive each day in doing their jobs, then there is less revenue to collect, and therefore smaller profits than there should be.
The formula for calculating your Average Net Profits per Manager
Net Profit / # of Full-time Managers
A company earning $100,000 in Net Profit through the work of ten managers is going to struggle against a company earning the same amount with seven managers. This is because the more managers you have on your payroll, the higher the risk of bureaucracy and employee frustration when you have more bosses than workers.
Higher Creates Opportunity: The higher the number, the more efficient your management team is in converting a sale into profit.
Lower Creates Challenges: The lower the number, the more likely you are throwing money away on a management team that is not carrying their weight.