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What is an employee worth?
Employees are the lifeblood of your business—that much is clear. A few years ago, a business owner once said to me, “Seeing my employees and working with them motivates me to get up every day and drive to work.” This quote shows that the personal social fabric in and of itself has enormous value.
Furthermore, the purpose of a business is typically to provide the greatest possible value to customers. And long wait times would be the opposite of high customer value. In this respect, every business fulfills its purpose best when there are enough employees and customers don’t have to wait for their heating to be repaired, a wall to be painted, or hospital linens to be laundered.
But for this post, let’s take a sober look at the numbers to see just how valuable each additional employee is to your business. Are you aware of how much revenue and contribution margin you’re losing if you don’t fill a position quickly enough?
To help you calculate this more precisely for your business, I’ve programmed an online calculator for you that you can use for free. At rebrand.ly/online-calculator, you can run the numbers using your specific figures.
Here’s an example calculation:
Let’s assume you have a business with the following key figures:
• You bill customers 65 euros per hour for a journeyman
• The number of days worked (after deducting vacation time) is 215 days, and the percentage of productive working time in a 40-hour week is 90%.
• You pay each employee 21 euros gross per hour. Additionally, there are monthly costs (excluding social security contributions) of 750 euros per new hire for tools, work clothing, etc.
• Let’s also assume that you make a profit on materials for your jobs. Materials account for 30% of revenue, and you calculate your margin on materials at 15%.
• Your employees typically stay with your company for 10 years, and you plan to hire 5 new employees over the next 5 years.
The costs of 63,226 euros per employee (including social security, continued pay, and a 13th-month salary) are offset by 100,620 euros in revenue from labor services and 6,448 euros in margin from material sales. This means that each employee in the example above generates a contribution margin of 43,862 euros per year.
What is the value of recruitment support?
Let’s turn to the added value that such support provides. Many coaches would simply multiply the €43,862 by the number of employees and the number of years an employee stays. This results in impressive sums, but they’re only accurate if companies were completely unable to fill their positions.
That’s why my approach would be to look at how much contribution margin is lost if, for example, it took 239 days instead of just 42 days (6 weeks) or 56 days (8 weeks) to fill the position. If a system is created—as I do with my clients—that can be used repeatedly, then you can multiply this amount by the number of planned hires.
Assuming a hire within 42 days compared to 239 days, the added value of the support in the example above—for 5 hires—would be 118,367 euros. Or to put it another way: that is what a company would lose if it chose not to use this support. If it takes 8 weeks to fill a position, the added value is still 109,955 euros.
What specific steps should be taken?
There are three scenarios:
Case 1: Hiring employees is worthwhile, and your hiring time is so short that further shortening it would yield little added value. In that case, you’ve obviously done a lot right and are highly attractive to employees. You don’t need an agency.
Case 2: Employees are worth the investment, but your hiring time is so long that significantly reducing it would create substantial added value. Seek out support. Otherwise, it may end up costing you more not to use it.
Case 3: Employees aren’t generating a significant contribution margin. Seek advice on how you might improve your cost structures, pricing, and business model.
