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Welcome back to management voice after a summer break. It tends to be the time of year that recruitment increases – either because people come back from the summer holidays and decide they want a change, or because the work load starts to increase, and the pressure on existing people grows. However, before you trigger the recruitment process, its worth standing back and considering just......

When does a new employee become profitable?

With sales people, the calculation is relatively clear – when they have brought in more net margin that the total direct cost of employing them to date. Though the elements of this sum may vary, it is still fairly obvious when a sales person is performing and when they aren't. This is why underperforming sales people are removed faster than other under-performers – the measures are clear. But what about the rest?

1   Some guideline figures

You can spend millions on detailed consultancy to give you precise answers – but this in itself is not good value for money.

A useful rule of thumb is that for a larger business it takes about 12 months for a manager or senior professional to make a net contribution to the business, and 6 months for lower ranking staff and professionals. In smaller businesses, those figures could be halved.

For a basic clerical worker the time might be as low as 3 weeks, yet call centre workers in the financial service centres might take 8 months to be fully trained – though they contribute to profit before that.

2   Why is it important to estimate time to employee profitability?

For a small business – get this figure wrong and you could jeopardise the company. For a larger business, there is the constant dilemma between ‘buy or build'. Given that the candidate rarely exists – what is essential in the attitude/knowledge/skill mix for this role.

3   Create a rough estimate

Here is a very basic ‘headline' way to estimate how long it will take for an employee to be profitable.

How much of the role's contribution comes from

                 a)      Specific skills/professional expertise?

b)      knowledge of external business/industry factors?

c)      Knowledge of your business internally?

Allocate a percentage to each factor a, b, and c – make sure they add up to 100.

Estimate how much time it will take for a person to acquire the knowledge or skills they lack. Complete the 3 calculations:

percentage of specific skills x time to acquire = A months

percentage of external knowledge x time to acquire = B months

percentage of internal knowledge x time to acquire = C months

Whichever is the longest of A, B and C, is likely to be the time it takes for a new employee to be making their maximum contribution.

Example 1: In Company Systems Trainer

Contribution from specific skills as trainer: 40%

Contribution from external knowledge: 5%

Contribution from knowledge of internal systems: 55%

Time to acquire specific training skills: 1 month

Time to acquire external knowledge: 3 months

Time to acquire full knowledge of internal systems: 8 months

Time to become fully effective = the highest of:

40% x 1 month – less than 2 weeks

5% of 3 months – less than 1 week

55% of 8 months – approx 4.5 months

This simple calculation shows that recruiting an internal person who knows the systems and developing their training skills will give you a profitable employee far more quickly than bringing in a skilled trainer from outside who does not know the company systems.

Example 2 – Marketing Manager

Contribution from marketing skills: 40%

Contribution of external market knowledge: 40%

Contribution from knowledge of products: 20%

Time to acquire specific skills: 2 years

Time to acquire external knowledge: 1 year

Time to acquire full product knowledge: 4 months

Time to become fully effective = the highest of:

40% of 2 years = approx 10 months

40% of 1 year = approx 5 months

20% of 4 months = less than 1 month

From this calculation it is clear that the most important aspect of the recruitment is the core marketing skills and not the product knowledge. Choosing product knowledge over marketing skills is a common problem for technology companies, often leaving them with a hefty bill for training.

Hope you found this useful. 3C offers a range of consultancy and training around aspects of Finance for non-Financial managers.

Management Voice Index
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