If you ask most CEOs who don’t work for a non-profit what is most important to them, they will reply, “whatever makes the company money (revenue) or whatever saves the company money (margin/profit).” The primary marching orders from most CHROs for HR and recruiting functions will be about continuous improvement to reduce cost.
I know most recruiting leaders are nodding their heads as they read that statement.
Don’t worry. This is not another dull dry article about cost per hire.
As we should all know by now, from an acquiring talent perspective, as an industry we generally focus on two other major KPIs: speed and quality — beyond just cost.
The funny thing is when you really boil down these and other major KPIs, they all relate back to money anyway. Hold on, I will explain.
Since HR/recruiting functions pretty much are viewed as a cost center by leadership (CEO/CFO), a lot of your operational improvements or strategies will always be tied to cost savings in some way. There will be times though where you can show a correlation to what your organization produces in the way of delivery or results that can show revenue gains for the company. These are harder to calculate, but definitely worth the effort given you will find that there are multiple increases above and beyond what you can show from cost savings alone.
Where I have managed to get the greatest traction and support from executives for any strategies or organizational model changes is ensuring that my presentations very clearly call this out in the first part of a presentation deck or conversation. Let’s call this the “money slide.”
I also learned very early on given direct feedback from business leaders that most executives see hundreds of presentations a year, are very busy juggling multiple major decisions, and don’t have time (or patience) for more than a few slides anyway. Additionally, I have found many an executive likes to ask lots of probing questions, and you will never really get past the first slide anyway. It blows me away when I see decks of 20+ slides trying to be presented to senior executives, but that is another article for another day. I am sure you know what I mean. 🙂
I am going to go into a little more depth with examples at a tactical level to help you connect the dots as to what I am referring to when I talk about the how and the why of the “money slide.” (Note: I personally get frustrated when I read an interesting concept or idea but no level of detail behind it).
For this example below, let’s pick on a better assessment technology as a needed investment to help improve the quality of hires.
Example: Let’s say you are looking to make a recommendation to why you need to change the way your company interviews so you can identify and assess a better quality candidate. We could put many a reason on the pros of doing this, but what you also might have found in the past that while the business case seems totally logical to you and sound when you presented it, you still struggled to get that increase in your budget or incremental investment approval for any people or technology needs. One reason is that the business case did not show the direct correlation to how it would make or save the company money.
Let me state that again: The business case did not show the direct correlation to how it would make or save the company money.
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So how might this play out, keeping in mind how we want to “show them the money”?
Let’s start with needing $100,000 for a technology solution that helps assess better quality candidates as above.
First the main benefits and outcomes of doing this. Let’s pick a few different scenarios but let’s also add next to them the potential of realized gains in terms of cost savings or increased revenue next to the item:
- Less attrition = cost savings
- Higher-performing employee in a shorter period of time = potential revenue or PPE (profit per employee)
- Less time interviewing candidates = cost savings
- Lost opportunity of the role remaining open = lost revenue depending on the role
Now let’s start to model some math on some of these scenarios. I will be conservative with the numbers so you can relate, and not say, “this does not apply to me.”
We also could combine some of these below or let them stand on their own if we wanted:
- Less attrition = your proposed solution helps with a 5 percent improvement for the year. This equals five fewer people for this example who need to be replaced. Plenty of studies show that the cost to replace is one to three times salary. Let’s pick 1.5, being conservative again. I will also pick a conservative average salary ($60,000) for those five positions that need replacing. So five roles x $60,000 x 1.5 = $450,000. Your modeling could be significantly more or less depending on your company size, but you get the directional point here.
- Higher-performing employee = Let’s be conservative and say that your new assessment solution increases new hire performance for some roles (let’s pick sales for this example) by 5 percent. Let’s say that the average revenue target for these sales roles of $1 million in sales a year. So if you can hire a better sales person who delivers 5 percent more in revenue than the $1 million target, that’s $50,000 more in revenue. Now let’s say you hire 10 new sales people a year and on average, it works out that increased performance for those 10 new salespeople is 5 percent, which would equal $500,000 in increased revenue for the company. Conversely, you could get really conservative and tell the executive that you only need to hire just two people who produce 5 percent more than their target to have your assessment technology pay for itself in Year 1.
- Less time interviewing = Being conservative, we will say that your new solution will save 10 percent off just business interviewers’ time (without loading recruiters’/HR time). We will say in this example that you hire 500 people a year. The average number of candidates interviewed by the business to produce one hire is three (3:1), being very conservative. The business also averages five business interviewers for each position needing to be filled. That is 500 x 3 x 5 = 7,500 interviews a year. Let’s now say each interview on average is one hour in length and the average loaded salary for the business interviewers is $150,000. $150,000 works out to be about $72 per hour. So this would work out to be 7,500 x $72 = $540,000 in interviewer time. Using 10 percent savings this would = $54,000 or take two years to pay for the assessment solution investment. There could be other soft (or hard) dollar benefits here like what these hiring managers do with the time saved (people development, deliver a product more quickly, increase revenue, etc.) but you get the point that there are other dollar opportunities if you wanted to present them for your business case.
- Lost Opportunity = This one I have found the easiest to put together. In this example, let’s use the same math as we did for the sales roles in example 2) above. So if just one sales role remained open and not filled for that year or four roles remained open on average for three months, either way this is $1 millon in revenue lost.
At this point I am hoping you get how you might want to use some (or all of these data points) to create the “show me the money slide.” Present your business case upfront and not on the last slide as to why investing $100,000 on an assessment solution saves or makes the company money.
In the example I gave (which happens to be a real-life example), these numbers are going to shift for your situation and you will need more than 10minutes to work out the financials. But even if you are not sure, you can still presented your case with very conservative numbers where it might only require 2-3 percent savings on something to prove the business case. Logically the bigger the decision that needs to be made, the more time you are going to spend on the business financial modeling to include any additional studies, benchmarking, or research to support your business case. I have lost count the number of times that extra hour of benchmarking and research corroborating helped cement the support from executive stakeholders on my business case.
In my example, what started off as a significant play for an improvement in “quality” also needs to be presented with a cost/profit lens IMHO. What I have found is the more successful I am at presenting the business case this way regardless if is it a technology, structural/people, or process improvement change, then quicker I have had the key executive stakeholders green light and support it.