At one time or another, every service manager has to deal with a technician wanting more money. The service manager is faced with a difficult situation when senior management resists. When I was a service manager in California, the dealer I worked for would let a technician leave when a $.10 per hour raise would have kept them with the company. As a service manager, it was very frustrating, and to combat that, I sat down and worked at computing what it costs to hire and train a technician. Every service manager should work through this exercise.
Cost of Hiring
The first cost associated with hiring a replacement is the cost of recruiting. This would include the cost of advertising, using an outside recruiter, and the cost of the manager’s time to review resumes and interview applicants. Research shows that this cost can run from $2,000 to $5,000 dollars or more. To be conservative, we will use a cost of $2,500.
After selecting a candidate, the next step is to get them on board with the company. Costs associated with this would include background investigation, drug testing, perhaps a physical. Also included would be the time of employees to enter the new technician into HR and payroll systems, explain benefits, provide orientation to the company, etc. This cost can easily exceed $2,000 and even more if you provide relocation money. For our example, we will use $1,500 to be conservative.
Cost of Bad Hires
In every company, there are going to new employees that do not work out. The reasons will be different but there will be bad hires. If your company uses a 90-day probationary period, then in most cases you would be out the recruiting cost plus the first three months of salary and associated costs.
According to a recent salary survey of copier technicians, the average salary was over $45,000. If we reduce that by one-third, that would still leave a starting salary of about $30,000. For 90 days that equates to $7,500 plus counting the employer’s share of taxes, it would be closer to $8,000.
If we are very good at hiring and retaining new employees, we might have a 90% success rate. If we use a 10% failure, this adds another $800 to the cost of new hires.
Cost of Training
After hiring and onboarding a new technician, the next expense we have to consider is the cost of training this person to service equipment successfully. Again, the amount of training cost will vary depending on industry experience and aptitude. For our discussion, we will use a new technician of average aptitude. More experienced technicians require less training but will demand a higher salary.
For a new technician, there will be a number of online and factory schools that they will have to complete. For our discussion, we will use four factory classes. We will account for online training later in the article.
For the factory classes, we have the cost of travel, hotel, and meals that need to be included. Assuming the following:
- Travel $300
- Hotel $500
- Meals $200
- Total $1,000
These values are conservative. With the four classes, that is a total of $4,000 in additional cost. For dealers that have in-house training, the cost may be slightly less, but we would have to include the value of the trainer’s time.
During the training process, there will also be costs involved in providing on-the-job training (OJT). The technician or supervisor that is providing this training will accomplish less while he is training. He will have to move more slowly, stop to explain things, and then as the new technician progresses, he will initially be slower and make more mistakes.
This is a difficult number to calculate and will vary depending on many factors, but for our discussion, we will assign a token cost of $1,500 to this process.
This gives us a total training cost of $5,500. Again, this is a very conservative value and your actual cost is likely to be significantly higher.
Cost of Lost Productivity
The costs listed above pale in comparison to the impact on the productivity of the new technician. When we factor in the lack of skill, the time spent in OJT where the technician is not aiding in the call process, and the necessary online training time, the new technician will most likely be 50% or less effective in the field as a skilled technician the first year. During the next year, he might improve to be 75% effective and by the third year, he should be approaching the 90% level.
If we use our initial salary of $30,000 and we add another 25% to cover taxes, insurance, and vacation, that gives us a cost of $36,000 per year. This would mean that the first year the company had a lost productivity cost of $18,000. The next two years add another $12,600 in lost productivity. This is a total cost of $30,600
Bad Hire Cost
Cost of Lost Productivity
When I went through this exercise working in California, the cost 20 years ago using actual data was over $60,000. So to save $208.70 in the cost of the raise for one year, my employer let $60,000 walk out the door.
I would encourage all to sit down and work up the real numbers for your company. Understanding this information will motivate you to do all you can to retain employees. I would also encourage you to review your hiring process to minimize the number of hiring mistakes.
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