The Investment of Hiring

When an organization hires a staff person, no matter how menial the role, they are, in fact, making a long term investment.

Like any good investment the greatest influence on the decision should be the Return on Investment (ROI) you will achieve. Sadly this is often overlooked.

On many occasions, in an effort to save money (aka minimize investment) well-meaning organizations will boil their hiring process down to salary and benefits at the cost of candidate experience and ROI/value for money.

When your hiring process is focused entirely or almost entirely on keeping salaries and benefits down without compromise on the responsibilities/expectations of the role you typically end up with inexperienced staff, who are over-worked and under-paid. This tends to be a recipe for disaster.

In such circumstances you see a high level of turnover which, by itself is very costly.

According to several HR research firms the average cost of hiring is approximately $4,000 per employee in terms of recruiting not to mention approximately $1,300 per year/new hire in average training costs. It also takes an average of 42 days (waaaay too long) for the average organization to hire.

This is 42 days where a position deemed necessary is providing zero net productivity. In fact rarely is a new employee 100 percent productive on day one – it will take time to get to full productivity.

In fact check out this excerpt from an Investopedia article on the subject:

“Bliss & Associates Inc. breaks down the productivity scale into three periods:

  • Roughly the first month: After training is completed, new employees are functioning at about 25% productivity, which means that the cost of lost productivity is 75% of the employee’s salary.
  • Weeks 5 through 12: The level goes up to 50% productivity, with corresponding cost of 50% of the employee’s salary.
  • Weeks 13 through 20: In this timeframe, the employee usually reaches a productivity rate of up to 75%, with the cost being 25% of the employee’s salary.
  • Around the five-month mark: Companies can expect a new hire to reach full productivity.”

Think about that for a moment. Thousands of dollars goes into every new hire AND they do not reach full productivity for five months. If you are burning through employees with a high rate of turnover you are LOSING money on your HR investment.

Furthermore, the higher the level of turnover for a particular position the more likely the level of chaos as the role changes hands from person to person. This means the longer it will take a new person to become productive after they start.

When hiring for a position the first, most important factor, needs to be on the return and not simply the upfront cost. While it may be more costly to bring an experienced individual into a position the return and longevity of the person in the role will more than justify the investment.

Hiring a person is not the same as buying cheap, disposable forks and knives where the value is entirely based on the lowest up front cost. To put it another way you cannot rely on the principle of volume when hiring people because people are far more complex then knives and forks.

When hiring try to focus on experience and invest accordingly in the position. Most importantly, knowing the high cost of hiring, do everything you can to ensure a happy, well-trained, productive workforce and a high quality work environment.

Doing these things will ensure you keep your employees for the long term and maximize you substantial investment in them generating solid ROI.

But remember – it all starts with a good HR process.

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