Hard Cost
The hard cost of hiring goes beyond salary. Make sure to take into consideration obvious costs, like employee benefits, as well as less apparent expenses, such as the cost of turnover.
Here’s how to break it down:
Start simple. Calculate the cost of the hire based on compensation.
If a recruiter was used to find the talent, include that cost as well.
Next, calculate the cost of employee benefits. The United States Department of Labor recommends Multiplying the base salary by 1.25 to estimate the total cost of employment taxes and benefits. Items listed under Salary subject to benefits are examples of benefit expenses included in the 1.25 multiplier.
Estimating facility costs can be a bit tricky. Joe Hadzima, MIT Sloan School of Management Chair, recommends estimating 225 to 250 square feet per employee in high-tech industries. The example below uses this average to calculate facility cost per employee.
Cost of turnover is less straightforward, but still important to include. SHRM predicts that it costs 6 to 9 months’ salary on average every time a business replaces a salaried employee. Plus, make sure to assume the turnover rate for the role. If unknown, use the 19% national average.
Will the employee travel for business? If so, estimate travel expense to complete the hard cost exercise.
Soft Cost
The soft cost of hiring a new team member can be challenging to identify, let alone calculate. These sample equations should help you better understand what indirect expenses should be added to the overall cost to hire.
Here’s how to break it down:
First, understand the per hour expense for all roles that have a hand in hiring and ensuring the success of the new employee. This could include the hourly rate for a team manager, the average hourly rate for other CSMs who may help onboard and the hourly rate for the recruiter who identified the employee.
Use the per hour totals to calculate the cost of recruiting per person. This is a first year only cost and should be deducted from future projections.
Use the per hour totals to calculate the cost of recruiting per person. This is a first year only cost and should be deducted from future projections.
Calculate the time spent managing the employee. This should include the estimated time for meetings, development, on-going training, etc.
Calculate productivity hours. This should include tasks that negatively impact productivity, like manual report creation. Estimate the hours spent on these tasks and multiply them by the CSM hourly rate.
Don’t Overlook Opportunity Cost
While calculating your soft cost may not uncover a substantial cost savings opportunity, they do force you to realize the time investment required to complete activities like hiring, onboarding, and reporting. The time estimates used in the equations above are conservative. Tally them all together, and you’ll quickly realize how many weeks you or your team could be tied up, leaving less time to manage your customers properly. For many, the time invested in completing these activities is more valuable than the financial investment.
What could you accomplish if you got those hours back? Customer Success as a Service (CSaaS) helps Customer Success teams reclaim valuable time and energy. CSaaS partners take on the burden of hiring, onboarding, managing and reporting so you can focus on running your business.
Calculating True Cost & Impact to Revenue
Understanding the actual cost of Customer Success requires a deeper dive into productivity. Each Customer Success team is different so the factors that contribute to calculating productivity can vary. We’d love to walk you through these more complex equations with your team data. Plus, we can help you estimate the impact your new hire will have on revenue attribution.
Ready to get started? Contact Sheik Ayube at sayube@esgsuccess.com now.