From Jacksonville Business Journal by Steve Waterhouse, President of Predictive Results
The “Small businesses not hiring in 2012 as expected” story that ran on your website April 25 correctly stated that rising gas prices contributed to the slower than anticipated increases.
Yet the corresponding corrosion in profits is only one factor undermining small-business confidence. Companies are expanding slowly mainly to avoid costly hiring mistakes.
Almost 70 percent of 2,700 employers surveyed for CareerBuilder last fall reported that they were affected by a bad hire in 2011. Forty-one percent of those affected reported that the bad hire cost them more than $25,000 in lost productivity, additional hiring costs, deteriorated workforce morale, and poor client satisfaction. A quarter of the companies that made bad hires reported that the mistake cost them more than $50,000.
A business owner does not want to lay off workers under any circumstances and the prohibitive cost of making the wrong hire causes them additional trepidation. Knowing that they might never recoup their investment in an employee provides good reason for proceeding slowly.
Carefully evaluating workforce needs and thoroughly screening candidates helped employers decrease the 90-day turnover rate for new hires from 9.2 percent in 2007 to 5.6 percent in 2010, according to PwC Saratoga’s 2011/2012 US Human Capital Effectiveness Report. The first-year turnover rate dropped from 31.7 percent to 22.7 percent in the same period.
Maintaining or improving key performance indicators such as gross profit margin and revenue per employee is vital. At large corporations, revenue per full-time-equivalent employee decreased 11.2 percent to $344,432 in 2010, according to the most recent statistics from PwC Saratoga. Trends in revenue per employee vary by industry and small-business owners often are calculating and monitoring their companies’ performances as well.
Giving the potential impact on their bottom lines, small businesses must address strengths, opportunities, weaknesses or threats when adding positions. Adding a salesperson to bring in revenue impacts the business differently than expanding production or enhancing back-office efficiencies.
Once an owner has determined the position to add based upon his strategy, he is increasingly considering attitude and aptitudes required. Team chemistry and technical proficiency are equally important, particularly in attracting and retaining high performers.
Even if gas prices drop or the economic recovery accelerates, small businesses will keep looking for productive, long-term employees. Slow, and steady ahead.
Steve Waterhouse is President of Predictive Results, a Predictive Index® company, helping employers hirer smarter and manage more effectively. He can be reached at 904-269-2299 x102 or firstname.lastname@example.org