29 April 2020
If 72% of your total costs are personnel costs, these costs better be worth it.
Given the fact that I’m CEO here at Equalture and responsible for finance, COVID-19 keeps me busy for sure. All companies are reconsidering costs, so of course that applies to our company as well. Surprisingly enough, I see that many companies tend to cut personnel costs first.
In this blog I explain why not investing (financially) in your team during this coronacrisis is, in my opinion, the worst decision you can make. Besides, I will provide you with some challenging questions you can ask your manager when (s)he’s considering HR costs savings.
63-81% of the total costs.
That’s how much the average scaleup spends on personnel. In our case it’s 72%. This is an enormous percentage and by far your largest cost category, asking for highly responsible decision making when it comes to people decisions.
I think that one of the biggest challenges for People Professionals (recruitment, HR and talent) is to calculate the ROI of people-related decisions. But in the end, that’s what every CEO/CFO wants to see to base decisions on, especially when it comes to costs that represent the absolute majority of your total costs.
The perception of HR being the burner-department.
I think that many people working in the field of recruitment/HR can recognise themselves in the frustration that HR is by many C-level decision makers still perceived as an administrative obligation, rather than a strategic growth stimulator. And in times likes these, where COVID-19 hits the worldwide economy, we first start cutting costs of which we believe that these costs won’t eventually earn money for us.
And that’s for many companies the point where it’s time for the HR-being-the-burner-chat at the board table.
Being a founder myself and having been able to build a team of 14 amazing people at this point, I’m still frustrated by the thought that, for some, HR is considered to be a burner rather than an earner. And by the thought that people actually believe that companies can survive without investing in it.
If that’s what your company’s management team is thinking as well, they couldn’t be more wrong.
Not despite of. Because of.
This is a quick reality check. Let’s say you work at or you are founder of a company with 10, 50 or 200 people. If you reached this point, even with 10 people, it means that you’re growing successfully. And you probably spend 70% of your total costs on personnel.
So of all costs you made to grow your company and reach this point, 70% covers people costs? If that represents such a large part of your costs, this probably means that you have been able to turn these costs into earning. Into a positive ROI.
Your business isn’t growing despite of making these high personnel costs. It’s growing because of making these costs. Because your team has turned out to be a positive ROI since these are the people who are translating your goals into actual achievements. Cause let’s be honest, a founder can have a large stake in this growth, but isn’t capable of doing it all alone for sure.
Some questions to challenge your company’s C-suite
These are some questions to ask your manager or yourself (if you are the decision maker) when reconsidering personnel costs:
- If the company wants to cut personnel costs either way. ”If the team already costed a lot of money, but is also providing us with a positive ROI, isn’t it then dangerous to save costs here since large costs are already made, but the ROI can decrease due to these savings, which turns these costs into a poor investments?”
- If the company prefers tooling over people. ”You might think that this sales tool will help you improve commercial results, but isn’t it the people in your team who need to work with this system? So what if you buy a rockstar system, but without investing in turning your employees into rockstars?”
Well, at least I couldn’t be more happy with my team, because all things we’ve done as a repsonse to COVID-19 wouldn’t be possible without these 13 amazing people around me.
And if you would like to take the accountant-perspective, here’s some fin(anci)al food for thought: If your team is already proving its ROI, isn’t it more safe to not cut costs that have already proven and isn’t it maybe even more useful to keep investing small bits in these costs so that you can increase its ROI?
Just let the numbers do the talking. And for us, these numbers definitely make us focus on our team first.
Ready to do so too? Calculate your ROI of implementing Equalture’s Team Composition Technology here.