At the beginning of this series, we posed an important question: What could you have done differently in your hiring process? We walked you through our mathematical approach, showed you the shocking financial implications of turnover, and shed some light on the types of employees you will encounter, as well as how to understand them better.
We will conclude our series with one final question: At the end of the day, what do you really get when you hire right?
To answer this, we will use the overall effectiveness of your optimized team from our third article. We will also talk about the turnover costs that the company incurred when you lost some of your team members in the fourth article. If you haven’t read these examples yet, we highly recommend reviewing them to help you follow our calculations in our final article.
As with every investment you make, there is an expected return. In this context, your return on investment (ROI) when hiring a team is the combined productivity of those members. To understand this concept better, we have added some important definitions below:
- “Productivity” is a function of the output per dollar invested in the team.
- “Output” is the overall team performance. This could be anything from increased sales to better customer reviews.
- “Investments” include salaries, hiring costs, and other turnover costs.
In both of the examples below, we assume the turnover is 10%, and that the employees who left your company were of all levels (Junior, Intermediate, and Senior). As a result, your costs came up to $9.6 million, and this was what you invested in your team.
Recall that the Normal team performance of 100 employees was 100%. The investment per employee averaged $96,000, including salary. When we take this performance output and divide it by the investment, the resulting productivity is 10.4. We will take this to be your standard output per dollar invested.
What happened when you optimized your team? When we traded out some of your lower performers and brought in a few more motivated employees, the resulting Superior team performance was 140%. Since the employee effectiveness increased, less time was needed to complete tasks. As a result, even though your budget was $9.6 million, each effective employee only really cost you $68,571.
When we put these new numbers into our calculations, the productivity of this team comes up to 14.6. Already, we can see that your Superior team was 40% more productive after you changed the team composition. These team members contributed at a higher rate and were less likely to turnover. Your ROI went up by 40%, and that meant more sales or better customer reviews for your organization.
Do you remember how we selected this Superior mix of team members?
We talked about quantifying Competencies, which told us how emotionally intelligent and capable candidates are. This added a dimension beyond Skills, Knowledge, and Experience, which were less reliable differentiators. We used Behavioural Focused Interviews (BFI) to pick out candidates that were statistically more suited for the job, but were also less likely to leave. Our understanding of the employee archetypes helped us filter through candidates using BFI questions, and this allowed us to calculate the optimal team composition. All of these combined reduced turnover costs and drastically increased productivity.
You are finally fully equipped with Planet’s tips on hiring for success. Using these articles, you can now optimize recruitment, impress your VP, and earn that hefty year-end bonus!
Want to learn more about BFI and our analytical approach? We’re happy to connect and help you further with your hiring process. Contact us here to set up a meeting!