To get buy‐in for talent assessmentsyou have to be able to demonstrateROI. Savvy HR leaders know it'simportant to show HR's contributionto the bottom line, not just go hat‐in‐hand to the CEO.
In this guide we’ll show you the hardnumbers that demonstrate the valueassessments will bring to yourorganization, and how to build yourown business case.
Showing Value
LOWER COST PER HIRE LOWER "HIGHPOTENTIAL" TURNOVER
CUSTOMER RETENTION HIGHER PRODUCTIVITY
Companies using assessmentsreduced CPH by 3.3% year-over-year. For others, itincreased 1.3%
11% vs 18%For a company with 50 HiPosthat means hanging onto 4.5more of their future leaders
2XAssessment users had twice asmuch improvement incustomer retention year-over-year
56% vs 45%The number of employees whoexceeded expectations onperformance reviews
The Assessment Advantage
Source: Aberdeen Group
To show you how to calculate the ROIof assessments, we've createdattributes for a sample company, let'scall them Widgets 'R Us.
Our Sample Company
Number of employees: 500
Employee turnover rate: 16%
Cost-per-hire: $3,479
Customer retention rate: 70%
Profit per customer: $10,000
You can substitute your own numbersto create a more accurate estimate.
ROI of Talent Assessments
Widgets 'R UsHere's W
idgets' R
OI for u
sing
assessm
ents, ba
sed on the
compan
y stats
from the
last pa
ge
and som
e stand
ard calc
ulations
we'll
explain
in the follow
ing pages
That's areturn on
investment of2,269%!
Imagine puttingthat in frontof your CFO!
The calculations in the chart on the previouspage are based on the attributes of ourfictitious company and commonly-acceptedindustry calculations.
They also assume that Widgets 'R Us will hire80 people during the year and assess the topthree candidates for each role.
In the pages that follow, we'll show you thedetails so you can calculate your own ROIestimate.
Calculating Your ROI
COST OF The cost of assessmentsvaries based on supplier,volume, and type ofpackage/arrangement. Weassumed that the companyused in our examples washiring 80 people per yearand used assessments onthree candidates for eachnew hire. The cost perassessment at this volumewas $75.
EXPLANATION CALCULATION
Calculating Assessment ROI
ASSESSMENTS
$75 x 240
(Cost per assessment) xAssessments used
If you’re comparing costs, be sure to ask about the “allin” cost. Some assessment supplierswill offer a lower perassessment price, but then add on charges for mandatory trainingpushing the final cost up substantially.TIP
COST OF Estimates on the cost ofemployee turnover rangefrom 20% of salary to fivetimes salary. An average ofseveral major studies putsthe cost of turnover at136% of annual salary. Weused that figure in ourcalculations.
EXPLANATION CALCULATION
Calculating Assessment ROI
TURNOVER
($40,000 x 500) / 16% x136% = $4,352,000
([avg salary] x [# ofemployees]) / [turnoverrate] x [cost ofturnover %] = TotalCost of Turnover
COST PERHIRE
The average cost-per-hire inthe US (2012) was $3,479. Ifyou have your own CPHfigure, substitute it here.
Research from theAberdeen Group shows thatcompanies usingassessments realized a 3.3%improvement in cost-per-hire.
EXPLANATION CALCULATION
Calculating Assessment ROI
$3,479 x 3.3% = $115(savings per hire)
$115 x 80* = $9,200
[Savings-per-hire] x [# ofnew hires] = Total Cost-Per-Hire Savings
*Our sample companyplanned to make 80 newhires per year.
PROFIT-PER-EMPLOYEE
CUSTOMERRETENTION
EMPLOYEEENGAGEMENT
Additional ROI Factors
We used the most common areas of financial benefitfor using assessments. If you have the data, you can alsoinclude these factors to demonstrate the full return.
PROFIT PEREMPLOYEE
Profit per employee iscalculated by dividing thecompany's net profit by thenumber of full-timeemployees.
Companies usingassessments have a 2.5times greater year-over-year increase in profit perfull-time-equivalent (10%vs. less than 5%)
EXPLANATION CALCULATION
Calculating Assessment ROI
Profit per Employee =( [Revenue - Total OperatingExpenses] ) / [Total # of FullTime Equivalents (FTE's)]
If our sample company had a net profit of $10,000,000, the calculation would look like this:$10,000,000 / 500 = $20,000. If they realized a 10% yoy increase, that would mean $2,000 peremployee, or an additional $1,000,000 to the bottom line! "You're welcome, boss!"TIP
CUSTOMERRETENTION
Companies usingassessments have more thandouble the rate of customerretention improvementyear-over-year than thosethat do not use assessments(5% vs. 2%).
EXPLANATION CALCULATION
Calculating Assessment ROI
For our calculation, weassume a company with 1,000customers, earning $10,000profit per customer, a 70%customer retention rate thatincreases 2% per year.
([Avg profit per customer] x[total customers]) x [retentionrate] x [change in retentionrate] = Impact on Profit($10,000 x 1,000) x 70% x1.4% = $68,600
This is a trickier one to measure because you need to get data from different sources, but studiesback up assessments' impact on this metric and it's an impressive one to show management.
TIP
EMPLOYEEENGAGEMENT
Companies usingassessments are 36% morelikely to be satisfied withnew hires and 24% morelikely to have employeesexceeding performanceexpectations
EXPLANATION CALCULATION
Calculating Assessment ROI
How you calculate the returnhere will depend on how youtrack and report employeeengagement in your company.
Make Your CaseThe value assessments can bring to anorganization has been proven over andover again. All that remains is for you toshow your management the kind ofreturn you plan to bring.
If you'd like help with that, we're here foryou. We can help you identify youropportunities and provide relevant casestudies to make your case. And oursupport team will be by your side to makesure you get the results you expect.
www.McQuaig.com 1.800.387.5455
WHAT IS MCQUAIG?Easy to use, web-based assessments that helpyou hire and retain the right people.
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ASSESSING CANDIDATESImagine knowing how they’ll performbefore you make the offer. Find the rightfit.
COACHING & DEVELOPMENTCreate customized development planstargeting employees’ natural strengths andpersonality.
LEADERSHIP DEVELOPMENT
Find your future leaders and develop themthe right way with a 3-step process.
EMPLOYEE ONBOARDING
Better onboarding means higher productivityand lower turnover. Make your programwork for every individual.
TEAM BUILDINGBuild high-performing teams and fixdysfunctional ones by understandingeveryone’s natural temperament.
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