Knowing how much your team costs lets you make better decisions

Knowing how much your team costs lets you make better decisions

When it comes to prioritizing work in an organization, there's one thing that always gets people's attention.  And that's money!

People will push product teams to deliver features because it leads to one new sale, two new sales, a 1% increase in monthly revenue. You can be sure that folk know what the income number is. 

The number they're less likely to give is how much it's actually going to cost to get to one new sale, two new sales, or a 1% increase in monthly revenue. 

That's your job. You need to know what your team costs.

Calculating the cost of your team

To get this number you need a few other numbers first:

  • Average number of hours a team member works (e.g. 40 hours)
  • Average salary of a team member, turned into an hourly cost (e.g. $75,000 / 52 weeks / 40 hours = $36 approx)
  • How many team members do you have? (e.g. 7)

If you want to be super accurate, then you need to make an allowance for all the extra costs of having an employee, such as their equipment, taxes, healthcare, share of office space etc...  This will vary wildly depending on your organization so you can allow for between 25-50% extra, or just leave it off altogether as you can still make your point without it.

Based on just salary costs this team is costing us

  • $252 per hour
  • $10,080 per week
  • $20,160 per two week sprint
  • $43,750 per calendar month

How can you use this number?

The general rule is that knowing this number will be useful in any conversation where someone wants to do anything with the team, which frankly is most of the time.

  • Sales person wants engineer X to attend a client meeting on the off chance that a technical question gets asked - that's 4 hours * $36 for the persons time PLUS the opportunity costs of not doing feature Y which was due to bring in one $300 sale per day = one day delay of this work will cost $444
  • CEO wants to get the UI designer to mock up a PowerPoint presentation for the board meeting - that's 6 hours * $36 for the persons time PLUS the opportunity costs of not designing feature Y and delaying the team by one day $2016 = $2232
  • CTO hasn't allowed for automated tests - that's 2 hours QA time for each feature * $36 per hour - that's $72 of cost on each feature that's released

Yes, these are simplistic examples, and the world is more subtle, and we can divert people onto other work, but you get the point. We lose money doing one thing over another thing, so you better know how much money it is.

You might not do anything about it, but at least you know and you can be in a position to make informed decisions.

Ask yourself, some of the following questions:

  • How much time (aka money) do we spend fixing things we didn't test properly?
  • How much time (aka money) do we spend manually running things which could be automated?
  • How much time (aka money) do we spend introducing new features that we do not measure the success of? That we haven't validated with users?

Once you start to see this activity in terms of costs, then it's amazing how sharply into focus some of your decisions become.