A Director of Sales walks into the CEO's office and say his team needs Salesforce. Done. The Director of Marketing follows right behind him and tells the CEO she needs ExactTarget. Done. The Director of Human Resources comes in after that and tells the CEO she needs budget for recruiting software...
"Why do we need it, again?"
Ah, the poor Director of Human Resources. Despite being the person who saved the company tons of money by making sure insurance premiums only grew 15% instead of 50%, she has to claw and scratch to get money for just about everything. It's unfair, and it's the reality of many HR leaders in smaller organizations.
When the Director of HR asks for budget to invest in recruiting software, or training, or other useful "people" tools, CEOs envision her throwing gasoline on a huge pile of money labeled, "OVERHEAD" and setting it ablaze. Sales and marketing are the driving forces of revenue of most (if not all) businesses, so it's easy for these leaders to get the budget they need for tools. But anything that adds to the costs of managing employees needs to be scrutinized much more carefully, with the cost-not the value-leading the discussion.
If you're that Director of HR, or HR Manager, or office manager deputized as an HR person, I have a little trick you can play on your CEO or head of Finance to get the resources you need: Create a Bad Hire Budget.
A Bad Hire Budget is a calculation of the additional "overhead" your business pays every month because your company has underperforming, underdeveloped or even missing team members. This cost is a hidden line item in every company's budget. The business is "spending" this money one way or another every month, and the only way to eliminate the cost is to offset it with an (often much smaller) investment.
When you uncover the hidden costs of underperforming and missing employees, justifying an investment in HR-related initiatives is quite easy. Ironically, calculating your Bad Hire Budget actually involves the help of your sales and marketing leaders. Here's where to look for those hidden costs:
- Lack of revenue due to missing, revenue-producing employees.
If your Director of Sales says it takes 45 days to hire an account executive, and another 60 days to fully onboard them, that's a total of 105 days. So if your company needs to hire two sales people, that's 210 days of reduced sales productivity-over half a year! If you had recruiting software and better onboarding tools, it's proven you could cut that time by 25%. So without those tools to accelerate hires, that 25% gets added to the Bad Hire Budget.
- Lack of productivity due to underperforming employees.
Once a bad hire is working at the company, their underperformance costs money-especially in sales or marketing. Less leads and less sales definitely impact the bottom line. Work with your marketing and sales leaders to quantify the lack of revenue due to underperformance, and add this to your Bad Hire Budget. People make bad hires, especially when they don't have the structure interview process that recruiting software provides, and performance management tools ensure managers spot bad hires faster.
- Lack of productivity due to undertrained or inexperienced employees.
The things your employees have yet to learn, but need to learn, cost the company money. Conferences, coaches, consultants, classes and other learning services are designed to accelerate employee development. What if your sales reps were 20% better at closing deals because of a sales training program? How much additional monthly revenue would come into the door? That number gets added to your Bad Hire Budget.
If you keep looking, you'll uncover more and more inefficiencies and challenges in your company that can only be addressed by investing in how you recruit, align and develop people. Add up these costs and you'll have plenty of ammo to justify getting the budget you need, which is almost always smaller than the hidden costs.
When the time comes to meet with your CEO of head of Finance, introduce them to the concept of the Bad Hire Budget and walk them through how the hidden costs were calculated. Be sure to mention the sales and marketing leaders made the final calculations-not you. You want to cleverly make it clear this is a discussion about revenue-not people.
With some luck, your CEO will get it. And once the two of you agree there are hidden costs of underinvesting in HR, do two things. First, share the (much smaller) budget of tools and resources you would like to invest in that will virtually eliminate the much higher Bad Hire Budget. Second, try and formalize the Bad Hire Budget as your framework for justifying new operational expenses-because it worked.
Yes, my company Resumator sells recruiting software. But we believe strongly in the value of HR software, period. HR leaders need to be positioned to be part of the revenue engine in more businesses, and the Bad Hire Budget is a framework that just might help you get the respect your certainly deserve.