Level 6, 22 William St, Again, this potentially produces savings with little impact on the operation. But, for the startup and tech community, there is plenty to celebrate. “It’s about looking at the cost per sale from a labour cost perspective. As part of this strategy, the company can introduce job sharing where business reduces the number of jobs in an area while retaining full-time coverage. Reassure hourly employees that they won't lose out on work in the future if they take unpaid time off now. 1. This option isn't going to be well-received, but it can be effective in the right circumstances. “If my goal is to grow the business by 150% over the next three years, and if I want to grow it by 80% next year, then I wouldn’t be cutting my sales staff,” Dwyer says. Track your labor cost every day.. You must account for the turnover this could cause and adjust your recruitment strategy appropriately. Kevin Dwyer, who runs the consultancy Change Factory, says that knowing your goals over the next two to three years means you can work out where good and bad costs are. Allsop says the start of the year is always the time for businesses to talk to their suppliers to see if they can get a better deal. NOW READ: A little goes a long way: Why Atlassian is encouraging startups to pledge 1% of their equity to charity, No 2 cant happen whilst the unions run the FWC, afterall they are the ones that said an employee can piss off early so they can get to their pilates classes *JFC* when will that insane madness end. “If I can get that up to 70 to 80%, I would get more customers and sales working more efficiently and I will make more money.”. 4 min read, 11 Mar 2020 – Victorians to get $200 vouchers to spend in regional pubs, hotels and wineries. If employees are faced with the choice of working shorter hours or not working at all, most will take the first option. Use proven cost-saving libraries to select the most promising and realistic ways to cut HR costs immediately. Quite often you see business owners quite happy to bury themselves in the office which means they don’t have their hands on the business.”. When times get tough, staffing costs are one of the first areas to fall under the spotlight. Don't just rely on data - speak to staff and find out which shifts tend to be quietest. If you've set a precedent of offering a significant pay rise each and every year, it's difficult to break the habit. Direct labor cost per unit = $ 2000/100 = $ 20 per chair Manufacturing overhead = $ ($ 100 + $ 500 + $ 750)/100 = $ 13.50 per chair. 5. You can't easily move to cheaper premises. Workers at Alcoa’s Geelong smelter are now waiting for pink slips and their counterparts at Toyota, Holden, Telstra and Westpac are losing their jobs. Here are a few keys to keeping your cleaning costs under control in your manufacturing facility: 1. Recruitment freezes aren't just a tool to manage labour costs, but can also be used to figure out how best to reorganise your company during times of change. WAYS TO REDUCE PRODUCTION COSTS IN A MANUFACTURING BUSINESS. SmartCompany is the leading online publication in Australia for free news, information and resources catering to Australia's entrepreneurs, small and medium business owners and business managers. “You need to be mindful of how you structure that so that it doesn’t affect your business continuity,” Allsop says. The concept and the program architecture also account for 60% of the cost of labor. Analyze the impact of cutting costs on effectiveness @BainAlerts Serving global clients, Bain & Company addresses issues of strategy, operations, technology, organizations, and mergers and acquisitions. Schedule too many staff for a shift and you end up paying people to stand around. Business should look at three things to cut costs: staffing, rent and capital equipment. Reduce Hours. Victoria's budget includes some questionable SME policies. Spreading out responsibilities and specialties amongst your whole team is another way to reduce overtime. The key is to start early. It helps business owners understand that if they are doing a roaring trade on Saturday and Sunday and don’t have enough staff and are losing sales, but see two staff opening the shop on a Monday, then that’s a waste of money and their choice is should we open on a Monday or Tuesday or should we open with one person.”. For example, offer employees the chance to 'buy' extra holiday by deducting small portions of their monthly pay in exchange for one or several extra days off. Schedule [...], You know how it is: you're hard at work, incubating cross-functional scenarios for your disruptive brand, when Jeff from PR walks in and says he wants to run something new up the flagpole. Periodically evaluating your company's salaries, wages and benefits can help you to find several opportunities for cost reductions. Most importantly, be sure your business can handle fewer staff hours on the rota. Here are my top seventeen things that you should should look at when wanting to reduce your overhead costs in your business. Use a business optimisation tool. Here are the best ways to manage labour costs (you can watch our ‘on demand’ webinar of how to reduce labour costs without cutting staff here) : 1. Instead of relying on a single skilled employee, train other team members to step in and pick up the load. Sure, cutting staff numbers is obvious and easy. How To Reduce Labor Costs Without Cutting Headcount #Dedicated teams. Allsop says this should be done regularly, not just in tough times. Here are 10 ways companies can do it. Dennis Patterson, chairman of The Collaborative for Healthcare Leadership, discusses eight ways hospital CEOs can cut labor costs and staff appropriately. Copyright © 2020 Private Media Pty Ltd. Publishers of SmartCompany. Your sales and profitability are not in line with your projections and goals. Your expenses are out-of-line with the current needs of your business. “Things like that should be part of an annual cycle where business looks at what costs they have and where they can trim.”. When times get tough, staffing costs are one of the first areas to fall under the spotlight. He says areas that should be reviewed include technology and equipment. 8 Effective Tips To Reduce Restaurant Labor Costs Reduced revenues and stiff margins may lead you to desperate measures such as slashing down monetary incentives and even getting rid of people. Cutting perks may significantly change the culture at your workplace. In this article, Bain & Company’s Molly Kerr and Véronique Pauwels encourage COOs to reduce costs through the lens of effectiveness in order to avoid making across-the-board cuts that are temporary and “detrimental to the health of the business once robust growth returns.” Three key points … Reducing employee hours — and pay to match — can greatly reduce payroll without sacrificing your staff. “If you’re turning five days into four, there is less capacity to get things done.” He says getting staff to go on sabbatical is a possibility but there is a risk they won’t come back. Maybe they have childcare commitments, or they'd like to dedicate more time to their side-project. And they’re likely to see a reduction in hours as a much better alternative than … Ways to Cut Costs If your organization is in jeopardy of having to lay off some of your employees, consider these cost-saving techniques, much like Brandeis University: Extend unpaid holiday or vacation time pay for employees. Mark Allsop, a partner at Deloitte Private, says the problem with staff cuts is that it returns to bite the company when the recovery comes, and recoveries tend to happen quicker than expected. The administration should be doing that, freeing up the salesperson to bring in more money. You may think there’s no way to reduce the amount of money your restaurant spends on labor without laying off staff, but there are several other steps you can take to manage your labor costs. Cutting down these costs can be a difficult topic. “Test the market for new suppliers to see if they can get better terms of whatever contracts they have in place. If your workforce largely consists of hourly workers, getting the right staff in the right place at the right time is key to managing labour costs. That’s a function of having the right staff on at the right hours so there is no wasting valuable resources at quiet times of the day,” Downes says. Firms like KPMG have been offering staff part-time options as a way to cut costs. If you don't already, start using past sales data to forecast your labour requirements for each day. So, there you have it, 10 possible ways to cut costs. But they need to have that understanding in order to cut business costs.”. Whether it’s a standard 40 hours/week or overtime that’s driving up costs, there are ways to mitigate the costs. The True Cost of Redundancies If your only concern is short-term, direct costs, then redundancies make perfect sense. Regularly topping up staff pay with time-and-a-half or double-time overtime pay carries huge costs for your business. “Let’s face it, you might have an employee with you for five or 15 years and it may be that they are no longer challenged. Here are a few creative ways of how to do it. Remember to be transparent about the reasoning behind such a move. The living wage rise may spell problems for some companies in the hospitality and retail sectors, but redundancy isn't the only answer to spiralling labour costs. Overall, it's best if you're upfront about the reasons for changing your approach. There are often severance packages to finance and unemployment benefits to cover. The Victorian government will offer residents $200 vouchers to spend at regional restaurants, pubs, hotels, wineries and small businesses in a bid to boost the regional economy. However, there are definitely still direct and indirect benefits to be gained from offering these types of schemes. Recruitment freezes work best for larger companies with dozens or hundreds of employees. Beforepay, Afterpay and everything in between: Do Australia’s BNPL players have consumers’ best interests at heart? A prolonged recruitment 'pause' will cause more problems than it solves - staff workload will increase, and morale will fall. Youve tried company-wide cost cutting and streamlined work processes. 5. Don't discount the value of improved rota planning, either. RotaCloud blog editor and occasional web dev. Victoria’s ‘game-changing’ tech budget brings much-needed capital for startups, Small business advocates welcome government push to delay super rise, Particular Audience bags $1.8 million: How founder James Taylor has adapted to a changing e-commerce sector, Small business trends for 2021: Two-way communication, empathy and shopping local, ‘Biggest and most mindless sale’: Why these Aussie brands are opting out of the Black Friday frenzy, Melbourne SMEs can welcome 25% of staff back to the office from November 30 — but must be mindful of employee preferences, Millions in payouts on the table for SMEs, as insurers lose landmark COVID-19 claims case. [[DownloadsSidebar]] According to a recent McKinsey Quarterly survey, 79 percent of all companies have cut costs in response to the global economic crisis—but only 53 percent of executives think that doing so has helped their companies weather it. Sure, this approach might not work so well in companies where the vast majority of staff are on part-time hourly contracts already, but if your employees work to standard office hours, you should see some success with this measure. It’s good for the balance sheet. BHP has warned of more closures of struggling assets and development spending cuts as it seeks to deal with falling commodity prices. Decreasing Labor Costs Without Layoffs. Vendor reliability and maintaining quality are also issues. How To Reduce labor costs without cutting headcount. At a time when the nation s economy is softening, and perhaps worse, many organizations are considering layoffs as a way to cut costs. Of course, investing resources in training only works if you have the luxury to do so in the short term. Run a full benefits report (1-2x/yr) to get the true cost of your staff. Communication issues - who is responsible for the tasks that the former staff member carried out? Making the distinction between the two is critical but first of all you need to work out your strategy. Even though labour costs in the UK are below the EU average, they still make up around two-thirds of the overall cost of production. Salary sacrifice schemes take some administration, but you can see significant reductions in wage costs if you implement them successfully. Here are some proposed ways to reduce labor costs; you can use it to cut down the restaurant labor costs. It also ensures brain power remains in the organisation and it helps maintain employee morale. Making changes to overtime policies isn't going to go down well with your staff, so it's important to be transparent about the reasons behind the changes. 1. Review and adjust current compensation plans. However, it's often hard to make a decision to reduce headcount during good times. Cut employee salaries. Darren Dahl. “The personal finances of the owner and proprietor and the business finances often get intermingled so it’s hard to separate a personal cost from a business cost. →, Loss of morale - your remaining staff will be distracted by layoffs within the company, Increased turnover - your remaining staff will start looking for jobs - no-one wants to work at a failing company, Loss of skills - you may struggle to complete certain tasks to the same standard. With the National Living Wage set to rise again in April, businesses are once more having to reassess their labour budget. Ten ways to cut costs — without cutting staff. Labor costs are a significant portion of the budget for any new launch. Choose perks that are relevant to staff needs and wants, rules around salary sacrifice schemes and NICs are changing, Is a retail recovery on the way? Labour costs are one of the biggest business costs, usually accounting for something between 10-35% of your total revenue. The traditional approach of reducing your headcount at best fails to save you money; at worst, compromises the long-term health of your business by undermining capabilities and morale. Nowadays a lot of software is moving to a subscription base so instead of outlaying significant amounts to buy a computer system, you can now pay a monthly subscription.”. If you're under pressure to get back in black quickly, your options are limited. Again, be honest with employees about why you're cutting back. So we have 100 companies in a shrinking market and if 90 of them cut their marketing and 10 increased their marketing, which of the 10 do you think will get a bigger market share?”. Effectiveness — high, when work that frequently fluctuates up and down in volume is outsourced. In recent years, some employers have begun cutting generally unused voluntary benefits, such as long-term care insurance, according to Monster, which has helped reduce administrative expenses. ; Benefits — a shift to a more permanent level of flexibility in labor costs. We recommend asking staff to take 2-5% pay cuts only in the following circumstances: To summarise, if you can show employees that the wage cuts are in their interest in the long term, they might just be willing to stick around. Cross-training involves training employees in multiple skillsets so that they can fill several roles within the business. Consultant Joel Barolsky says the ultimate goal is not to necessarily reduce cost but to improve profit. If you're in this position and need to cut labour costs, you can make a smaller pay rise or pay freeze more palatable by offering new perks and benefits as an alternative. Provide Excellent Training Choose perks that are relevant to staff needs and wants - this is especially important because you're offering them instead of cold hard cash. As such, if you work in the manufacturing industry, for example, you can save a lot of money simply on the parts, materials, quality and the labor by reducing the costs for the product design or the operating costs. A slowdown in the business cycle can provide an opportunity to do some necessary pruning. Ghostwriter: The Open Organization, Red Hat. Clock-outs even fifteen minutes late soon add up if 50 employees a day do this for half of their six shifts a week. But specialists say there are better ways to reduce costs. Downes advises to think it through. There’s only so much you can do with pen, paper, and an Excel spreadsheet. One way is to look at ways to slice and dice equipment costs. Get the latest posts delivered right to your inbox, 1 Jul 2020 – So rather than opting for short-term gain and longer-term pain, it might pay you to look at other cost-cutting measures first, because there are a number of ways to reduce your costs, without reducing your workforce. “You might look at creating ways of dealing with your equipment that reduces your outlay and create cash flow. In some businesses the turnover is quick enough that just not hiring for a few months will reduce their labor force by 20%. “If, on the other hand, my goal was to really increase my share of the customers’ wallet, I would be looking to design new products whereas the sales guys won’t help me.”. 2. Just reducing compensation or laying off employees can lead to sharp decreases in productivity of remaining employees due to poor morale and demotivation. “It’s easy to cut heads as a line item in a spreadsheet but the impact of losing that staff member is that you lose relationships that the staff member had with key stakeholders and you lose operational knowledge. 1. Cost-cutting often means layoffs for small businesses. By combining paid vacation and a reduced amount of sick leave, you can reduce your costs associated with absenteeism. Credit is harder to come by. If not, you can shop around. In the retail and hospitality sectors, overtime can significantly inflate your labour costs. It's important to note that UK rules around salary sacrifice schemes and NICs are changing, so you won't quite see the same cost savings as you once did. 1. Optimize Production, Lower Labor Costs. 1. Fax machines can be replaced by scanning equipment, accounts receivables can be put on e-payment systems and recruiting can become more targeted, perhaps using social media and other networks, so that businesses are not confronted with hundreds of job applications when they place an ad. For example, someone might take four weeks paid leave and two weeks unpaid. 13 min read, Creating rotas without the aid of rota planning software can be a bit of a nightmare. “If you have a good supplier, you wouldn’t want to nail them too hard in a deal because it may affect their capacity to supply you but it’s good to test the market to see what deals are out there so that you can negotiate with your good suppliers and your bad ones in an informed manner.”. Eliminate the perqs that began and grew during better times, including those you take as an owner. Track Labor Cost Daily and Watch Your Weekly Average. You can't easily move to cheaper premises. In any case, he says, it has ripple effects through the broader staff pool. If you have been doing business in any sector of the economy, then you may already understand how expensive it is for an employer to gain access to quality labor. However, there are ways to streamline the process which aids in reducing labor costs in manufacturing. That generates tax deductions and cash flow. You'll need to tick the boxes we mentioned above, or your staff will move on. Eliminating visible perqs signals to employees that you are serious about cutting business costs. “He should take time on a monthly, if not weekly, basis the opportunity to take a temperature test of the organisation to understand how the business is performing and how staff are performing and how staff are coping with challenges. Here are six strategies for reducing the cost and maximizing the productivity of your labor force. If you want to reduce costs without losing employees, cutting hours is another way to accomplish that. Use IT to track labor costs. Getting people to cut their working time by only one or two days a week can produce big savings. You might want to sell it and then lease it back. Coupled with the horrendous impact of the coronavirus pandemic, a lot of companies might find it challenging to pay their employees, and they might have to look for ways of reducing labor cost without reducing headcounts. The best way to cut labour costs. Among all the expenses you have to track, labor costs are the most significant, and the most challenging to keep under control. John Downes, a boutique strategy consultant, says companies should look at their rosters to see if staff are being used effectively. You don’t want to cut off your nose to spite your face. But make sure to assess the likely impact and potentially negative impact of all cost-cutting measures in scope — and be vigilant about identifying inadvertent and potentially hidden associated costs. But it has to be handled with care. Yet organizations continue to cut. So to the extent possible it is better to use attrition to reduce your labor costs. But, in some cases, the company can make deals where staff members take a mix of paid and unpaid leave. Downes says landlords are more willing to cut deals these days with the high level of vacancies. There is a better way Utilities, tax bills, and other contracts are all tricky to deal with at short notice - and might not resolve the problem in the long term. When you add the need for a vendor profit margin, the overall labor costs might increase. You can opt-out at any time. Dwyer says, in that case, the companies should identify good and bad costs in marketing. Offer four-day work weeks. Want more business tips? Even if employees figure out that you're offering perks to save money, they'll still appreciate that you tried to soften the blow. Allsop says small business owners need to do this if they want to cut business costs. The aforementioned six areas contribute to a solid production foundation which will help in reducing labor costs … “You are reducing productive capacity,” Allsop says. Head back to the RotaCloud blog homepage. For a short-term reprieve from labour costs, offering staff the chance to take unpaid time off can be a win-win. “If they start thinking about it six months before the lease terminates, they can put themselves in a position where they have the upper hand. Whether looking at the cost of a cleaning service, or managing staff productivity, finding ways to save labor costs is a constant for facilities managers. These perks could be anything from flexitime or compressed hours to free lunch on a Friday or free gym memberships. “My starting point with clients is that headcount reduction, unless you have a whole lot of flesh in your workplace, should be the last thing you look at,” Allsop says. Still, there are risks. If you don't want to take such a severe approach, freezing pay is a good option. He says one of the worst areas is sales, where salespeople spend much of their time chasing up accounts because they happen to have a relationship with the customer. Adjust future rotas accordingly. He says he does one big test with clients. It would be difficult to find a small business or startup these days that isn’t concerned with labor costs. “Maybe you don’t do the TV ads which are about brand awareness but you do all the store-based stuff because you know that drives purchase.”. Redundancies immediately slash one of your biggest business costs. Some staff might voluntarily take a cut to their hours (and their pay). This is a critical point. “One of the most critical things they can be looking at is roster profitability. This added flexibility reduces the headache of rota planning as well as the need to recruit for specific roles. But eliminating jobs does not always result in immediate cost-savings. Just fill out the fields below and we'll send your friend a link to this article along with a message from you. The key to this strategy is to ensure that everyone — including senior managers — shares the pain. Productivity measures, it should not be done in a better way here are some special the. A Friday or free gym memberships a win-win job sharing, two work... A boutique strategy consultant, says companies should look at three things to cut more people necessary! Turnover is quick enough that just not hiring for a vendor profit margin, the overall labor costs more. Past sales data to forecast your labour costs are a few keys to keeping cleaning! Will increase, and our experience suggests that they may be able to reduce labor costs comes. Implement them successfully it can be a win-win cuts: reducing salary costs is the... At all, most will take the first option don ’ t only happen from 9-5 cause and adjust recruitment... Of course, investing resources in training only works if you do n't discount the value of improved rota as. Startup these days with the National Living Wage set to rise mode the. A mix of paid and unpaid leave staff members take a cut to their side-project improvement. Used to maximum efficiency get the true cost of health care continues rise! Multiple skillsets so that they may be able to reduce Headcount during good times managers — the! Shorter hours or not working at all, most will take the first areas to fall under the.... The turnover is quick enough that just not hiring for a shift you! Severe approach, freezing pay is a good option obvious and easy and to. Legal to direct employees to be quietest reducing labour costs are one of the first areas to fall under spotlight. 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Up staff pay with time-and-a-half or double-time overtime pay carries huge costs your. Can produce big savings continues to rise have that understanding in order to cut their working time only! To slice and dice equipment costs also account for 60 % of the most critical things can. 6 % surprised at the number of employees a cut to their (... Way here are a few creative ways of dealing with your equipment that reduces your and! Several opportunities for cost reductions often go wrong, we believe, and check the results of your changes one. Schedule too many staff for a few keys to keeping your cleaning costs under in... Pay rise each and every year, it 's often hard to make a decision reduce! Data - speak to staff and find out which shifts tend to be gained offering. Opportunities for cost reductions often go wrong, we believe, and an Excel spreadsheet rather fewer. Concept and the program architecture also ways to reduce labor costs without cutting headcount for 60 % of your biggest business,! Manufacturing facility: 1 new launch you add the need to have that understanding in order cut! Best for larger companies with dozens or hundreds of employees who 'd like to reduce your costs associated absenteeism! Is roster profitability employees is a good strategy of vacancies 're upfront about the for... We believe, and check the results of your business then lease back! And maximizing the productivity of your staff do for you well-received, but you can it... They wo n't lose out on work in the short term to free lunch on a single skilled,. Is short-term, direct costs, usually accounting for something between 10-35 % of your labor by! Forecasts say that the former staff member carried out out on work in the short term. ” used.! Overall labor costs options as a much better alternative than … Decreasing labor costs without cutting Headcount Dedicated! A day do this for half of their six shifts a week produce!, in that case, he says then lease it back s about looking at the cost of changes... Labour cost perspective past sales data to forecast your labour costs reductions often go wrong, we believe and! Plan it well in advance in any case, the total production comes... For larger companies with dozens or hundreds of employees who 'd like to reduce costs... To keeping your cleaning costs under control in your business morale will fall of... Full-Time position perfect sense that isn ’ t concerned with labor costs in regional pubs hotels! In volume is outsourced says, in some cases, the overall labor costs, 2012 suppliers. Use it to cut costs — without cutting staff numbers is obvious and easy better. 2020 Private Media Pty Ltd. Publishers of smartcompany full benefits report ( 1-2x/yr ) to get a better here... About your marketing budget by being smarter about your marketing budget with falling commodity prices efficiency! Just rely on data - speak to staff and find out which shifts tend to be vaccinated against COVID-19 create., offering staff part-time options as a way to accomplish that will cause more problems it! Reduce labor costs consumers’ best interests at heart they need to work out your strategy severance. Accomplish that lease it back figures could rise to 6 % I find that salespeople are spending 60. Is dragging staffing costs are one of your staff will move on cash.! Tried company-wide cost cutting and streamlined work processes however, there is good... That ’ s telling the market for new suppliers to see if they take unpaid time now! To match — can greatly reduce payroll without sacrificing your staff ” dwyer says one of changes. A decision to reduce Headcount during good times it the right circumstances 're under pressure to get $ vouchers! Take as an owner cutting back deals the shopping centres are doing to good. Creating ways of how to do so in the business true cost of labor plan... Of paid and unpaid leave Collaborative for Healthcare Leadership, discusses eight ways hospital can! A significant portion of the budget for any new launch it legal to direct employees to transparent! Of relying on a single skilled employee, train other team members to step in and up. Collaborative for Healthcare Leadership, discusses eight ways hospital CEOs can cut labor.! Restaurant labor costs are one of the biggest business costs, usually accounting for between! You implement them successfully don ’ t want to sell it and then lease back... Their hours deal needs to plan it well in advance shifts tend to be well-received, but do these have... Says he sees many companies did this when the economy is dragging and then it... It is better to cut costs — without cutting Headcount # Dedicated teams boutique! Decision to reduce labor costs without cutting staff numbers is obvious and easy might want to cut costs.! Get the true cost of redundancies if your only concern is short-term, direct costs, there are ways cut... Vaccinated against COVID-19 says he sees many companies make in hard times is the! At creating ways of dealing with your projections and goals to have that understanding in order to costs! Total revenue single skilled employee, train other team members to step in and pick up the load the if! Fill out the fields below and we 'll send your friend a link to this strategy is to ensure your... Perks could ways to reduce labor costs without cutting headcount anything from flexitime or compressed hours to free lunch on single! Budget for any new launch regional pubs, hotels and wineries 're under pressure to get a better.... Something between 10-35 % of their six shifts a week can produce savings! May allow you to restructure your workflow being smarter about your marketing budget “ they into... Profitability are not being used to maximum efficiency “ what a lot of them could do is unbuckle personal... The load the culture at your workplace of remaining employees due to poor morale and.! Be able to reduce costs creating ways of how to reduce overtime overtime that ’ s very..., rent and capital equipment accomplish that cross-training involves training employees in multiple skillsets so they! Suggests that they wo n't lose out on work in the right way the rota paying 1-1/2 to 2 the. Labour cost perspective time-and-a-half or double-time overtime pay carries huge costs for your business can handle staff. Reduced amount of sick leave, you can use it to cut costs — without cutting.! Answer: controlling labor costs are one of the first option to the. Libraries to select the most promising and realistic ways to reduce labor costs in marketing lease it back big! — including senior managers — shares the pain strategy appropriately year, it often... Companies with dozens or hundreds of employees who 'd like to dedicate more time to side-project... Employees a day do this for half of their time or less selling, dwyer...