Exclusive: What part of hiring ROI do you not understand?
Many managers know the cost of everything but the ROI of nothing.
This is the 11th in a series of articles by Dr. Michael Mercer, Ph.D.
Some investors buy a cheap stock, rather than pay more to buy stock of a good company that will increase in financial value. Similarly, some hiring managers are too cheap to use hiring tools that increase their likelihood of hiring applicants who become highly productive, profitable employees.
WHAT is hiring ROI?
Hiring ROI simply is cost of hiring an employee compared to the financial results that employee produces for your company. If you spend on expertise and hiring tools that result in you hiring highly productive, long-term employees, you achieve a huge ROI. But, when you hire a lousy, unproductive employee, you get negative ROI:
- financial loss for your company
- bad reputation for your management career
What is the Financial value of your future employee?
Imagine the ultimate financial value – in productivity and profits – that a terrific, long-term employee is worth at your company.
For example, the owner of a maid company phoned me to use my pre-employment tests to increase the odds his company hires highly productive maids. His company provides maid services to homeowners. I asked how much a maid is worth to his company. His first answer was the maid’s annual salary. So, I said, “No, the salary is not the financial value of a productive maid at your maid-service company. When you hire a productive maid, how much is that employee worth in maid service sales and profit for your company?”
He calculated this while on-phone with me. It took 20 minutes. Lo-&-behold, a highly productive maid can produce $50,000/year profit for his company!
With that financial value in mind, he commented that my pre-employment tests cost a “tiny percentage” of the financial value ($50,000/year profit) of hiring productive maids.
A horrible true story of focusing on Cost rather than resulting Value
My wife wanted eye surgery to improve her vision. The leading researcher who created this eye surgery was in Arizona, 1,700 miles from our Chicago home.
I took her to that eye surgeon – because he was THE expert. He insisted on doing the surgery at four times. So, we traveled to Arizona four times for the surgery. That was a lot of travel, hotel and food costs, plus the cost of four surgeries.
The good news is that 20 years after the surgery, my wife’s vision still is 20/20.
Three of her friends decided to get the same vision correction surgery. We recommended they go to the expert in Arizona. But, her three friends said it would be too expensive to travel from Chicago to Arizona. So, her three friends got their eye surgeries from local eye surgeons.
The good news for them is that all three friends now have 20/20 vision – in one eye! The bad news is that two of them are blind in their second eye and the third has horrible astigmatism.
Yes, those three people saved a lot of expense. They focused on the cost – and not the ultimate result they needed.
Their cheapness created horrible problems for them.
Interestingly, many hiring managers also focus on the cost of using an expert’s good hiring tools, e.g., training, custom-tailoring, and tests. They fail to consider how a tiny investment in expertise and good hiring assessments immensely pays off when they hire terrific employees. Instead, their cheapness increases the likelihood they hire lousy employees who are unproductive and hurt profits.
Question: What's the cost of hiring an average or lousy employee?
Recently, a city government called about using my pre-employment tests when they select firefighters. When they hire a Firefighter, it is a lifelong expense for that city with salary, benefits and retirement costs. They previously hired some firefighters who were lazy, did horrible work and after their probationary periods did just enough work to not get fired.
But the city’s treasurer did not want to spend a small amount on pre-employment tests, because it was not something they previously paid for.
Translation = They would rather incur a huge expense over many decades of a firefighter’s career and retirement, than spend a ‘tiny percentage’ on pre-employment tests to help them hire good employees. That illustrates the saying, “Some people are pennywise, but pound foolish.”
A phrase from EXXONMOBIL
When I was a corporate manager at ExxonMobil, there was a saying for that sort of manager: “Some managers – when they see a dollar and a dime on the floor – will step over the dollar so they can pick up the dime!”
In my article, “7 Jokes about Employees You Wish You Didn’t Hire,” I told this joke: Some managers are so cheap that they run after a garbage truck with their shopping list!”
Examples of “Saving a dime while wasting a dollar"
1. Sales Rep
If you hire Sales Reps, how much is a productive Sales Rep worth to your company in terms of
- sales?
- profits?
You can use this financial calculation easily to see how spending on good hiring tools, e.g., customized pre-employment tests, can help you hire highly productive Sales Reps.
2. “Blue-Collar” Employee
Entry-level employees are rather cheap on the payroll. But a good one can reap benefits for your company for many years. In contrast, a lousy entry-level employee can be expensive:
- lazy
- unproductive
- impulsive
- accident-causing
- substance abusing
- stealing
Isn’t it worthwhile to invest a “tiny percentage” of an entry-level employees’ pay into pre-employment tests and other precise hiring tools that help you hire excellent ones?
3. “White-Collar” Employee
A productive “white-collar” employee – skilled or professional or managerial employee – absolutely must be financially worth a lot more than their annual salary. So, you readily can imagine the financial value when you spend a “tiny percentage” of their salary on professionally developed pre-employment tests and other precise hiring tools to increase your odds you hire the best.
Focus on resulting financial value when you hire the best
Many managers know the cost of everything – but the resulting ROI of nothing! My wife and I knew the ultimate value of paying the national expert to do her eye surgery. Her friends only looked at the cost – and they will ‘pay’ for their horrible results from their cheap eye surgery until the day they die.
Likewise, hiring managers must focus on the potential financial ROI of each employee they hire. When doing this, those wise managers realize the cost of good hiring tools – including pre-employment tests – is a “tiny percentage” of the actual financial ROI they achieve when they select productive, profitable employees. CS
Michael Mercer, Ph.D., created 3 “Forecaster Tests” – pre-employment tests. Companies use his tests to predict which job applicants may succeed (or fail) on-the-job, if hired. Dr. Mercer wrote the book, Hire the Best & Avoid the Rest. You can see information about his 3 “Forecaster” pre-employment tests at www.MercerSystems.com.
© Copyright 2019/2020 Mercer Systems LLC Reprinted with permission.
CONTRACTOR SUPPLY MAGAZINE
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