The Return on Investment
The Return on Investment
This week brings our fourth blog post from Don Shilling.
As we continue the discussion on “Growing Your Own” employees probably one of the most asked questions I get is if our company invests in a tuition reimbursement program for a sponsored future employee or in an Apprenticeship or Mentorship Program what is my return on investment (ROI)?
Business logic tells us that there is a defined cost in everything we do and the better we are at recovering those costs the better the chances are we can show a profit in what we do. Everyone’s formula for this calculation might be different so I would like to answer this a little more generically
ROI In this situation is hard to measure because every situation is different. But I usually answer the question with a question. What does turnover cost you? For every position that is measurable. When you lose an experienced employee, the costs associated with that ranges today from 1/2 of that position annual salary or more. Today filling a skilled position can take 3 months or more. Then after recruitment costs, placement fees and On Boarding and Training expense it can really cost you much more than that 1/2 years annual salary projection.
For our companies skilled positions we fill with either an apprenticeship or tuition reimbursed positions we see direct costs of the entry level salary, the cost of the pay back on the tuition reimbursement or the apprenticeship mentoring. These costs are significant there is no doubt, so typically we amortized these costs over a 3 to 5-year period.
Because these positions start as “entry level” we see an initial lower salary cost but it is important to continue wage reviews and increases with these individuals as their skill levels increase. Typically, by the end of the three to five year pay back on the tuition or apprenticeship periods this employee is at a salary level equal to market value for their skill level. This is important, keeping this employee is critical, also showing this employee he has value by doing wage reviews as they progression of their education adds to that since of pride or accomplishment for each individual.
On revenue side we of course cannot charge customers full charge rates on apprentice or school to work employees but we can recover some of their costs. Typically, that is 10 to 20% initially and steadily increasing as the employee’s skill levels increases. If you graph this out the lines between the salary cost and recovery probably intersect about 1.5 to 2.0 years into the process and usually by the third or fourth year the revenue and profit generated by that employee has normalized. That of course is good news.
Better news is the fact you have taken a potential employee and turned them into a skilled employee who has been integrated into your system, bought into your company culture, is a loyal employee, has spent three to five years becoming part of the “family” and understands that he or she has chosen a career that is meaningful and rewarding. Bottom line the turnover we have experienced with these “Grow Your Own” employees has been very low. Thus, we enjoy savings for many years of not have to fill and re-fill those positions. It adds stability to the employee base plus with less turnover being able to grow your business because of this stability is critical and well worth the effort.
Bottom line is the ROI is gradual but worth the time and efforts. Again, sighting our company, where we engage a lot in promoting from within, we really know these individuals we understand their strengths and their loyalty is undiminished. We are engaged in Filling Careers not just Filling Positions.
I grew up in a construction family and worked for my Dad several summers during and after high school. Then while working on my degree at North Dakota State University I was hired by a construction equipment dealership. I started in their service department part time until I finished college. Then full-time service employment for a couple of years then transitioned into sales management. During the recession of the early 1980’s myself and three other managers started General Equipment & Supplies, Inc.
First as Sales Manager and eventually as President we grew our business from one location and 20 employees to 10 locations in four states and two Canadian Provinces and over 250 employees. Along the way we developed relationships with area Technical Colleges and created a College Tuition Reimbursement Program where today we Recruit a handful of new technicians annually into that program. Our company has also developed two Department of Labor Certified Apprenticeship Programs to fill hard to find skilled positions. I am currently semi-retired as Chairman of the Board.
For more information on how we can help with your employee development, please visit us at Learning Without Scars.