What is the TRUE cost of an employee?

So, I was talking with friend who runs his own little business, and he shared that a new sales staff of his said to him, "it's mid-March, and I have these couple of potential customers on the line, and if they sign, the revenue will be $x. That covers my salary for the year, and hence I become essentially a free resource for you for the rest of the year".

What thoughts about that?

I think it sounds good when you say it fast, but the reality is this:

1. Revenue does not equate Profit.

There's still Cost; Fixed, Variable, Stepped, Opportunity.

2. Salary does not equate Cost. (reference Point 1)

There's still existing rent and infrastructure cost to be apportioned, there's the need for a larger office to accommodate the new staff.

There’s the opportunity cost of not being able to use another sales person, because the seat has been given this the current person.

There's the dark, negative, infecting effect of a poor work attitude, the dragging down of morale as discipline is meted out, with some other un-involved parties thinking it was too harsh, or too lenient; collateral damage as they call it. 

3. The sales staff doesn't really become a "free" resource.

There was a cost that the company committed to when employing the sales staff, both financial and opportunity cost (reference Point 2).

That cost would have been eaten by the company, whatever the outcome of the sales staff's performance, which was an unknown variable at the start (and indeed will be an unknown variable again next year, whatever the performance this year; as Technical Analysis caveats go, "past price patterns are no guarantee of future performance ")

So, the sales staff shouldn't think of himself as a "free" resource and that future profit is pure and unencumbered.

Future profit, if any, still bears variable cost, and the fixed cost of salary multiplied by probation period, or till whichever point the staff is let go for poor performance.

Hence, I see the staff more as Options, where the premium paid is salary multiplied by a given number of months, and the upside profit is not something of a gift from the staff to the company, but more the duty and obligation of the staff to the company, as the company had already committed to the cost of the Premium.

And on the bigger picture, if the staff doesn't generate net profits, then why is the company employing the staff. What has the staff done to "deserve" to be employed?

So, to those of you out there who are staff, think about why you need to generate revenue, or good products and services so that revenue can be generated from them by the sales staff.

Remember you are not entitled to anything. Instead you are obligated, as the company first invested money and time in believing in you.

And those of you out there who are employers, think about pricing Options (financial market options, not various pricing plans). What is the maximum you are willing to pay for a given bet, and what is the probability-adjusted payoff of that staff. Sorry, I mean of that bet.