Episode 429: Thinking Time - A Salary Cap For Your Business

Above The Business

In this episode of the podcast, Bradley explores a concept borrowed from professional sports: a salary cap. While baseball teams like the New York Mets can spend vast sums, such as their $765 million contract with Juan Soto, many sports leagues like the NFL and NBA operate within strict salary caps. Bradley explains how businesses, much like these leagues, need to implement financial limits for labor expenses to maintain profitability and drive growth.

Inspired by Greg Crabtree's book Simple Numbers, Bradley emphasizes the importance of defining a salary cap for your business, suggesting a benchmark of 50-58% of revenue for labor costs. He also provides a variation of the formula for businesses with cost of goods sold (COGS), emphasizing the need for accurate financial forecasting and planning.

Using real-life examples from his experience with clients, Bradley highlights the value of allocating funds wisely across team roles, assessing ROI on labor, and striking a balance between profitability and investment in people. He shares a story of a business owner who intentionally increased their salary cap to foster growth by reallocating profits to hire additional team members.

Bradley challenges listeners to calculate their own salary cap, track historical labor spend, and make data-driven decisions about team investments. By managing labor costs intentionally, you can ensure that your business remains both sustainable and positioned for future growth.

This episode is a practical guide for business owners looking to gain clarity on their labor spend and unlock new growth opportunities by leveraging the concept of a salary cap.

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