How to Calculate The Cost Impact of Headcount Turnover on Sales & Revenue
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Predictive Backfilling Prevents Headcount Turnover from Killing Revenue
Here’s how to calculate it: A reactive attrition strategy extends the gap between lost revenue from the exited employee and fully ramped revenue from their replacement. Proactive backfilling eliminates this gap by hiring ahead of predicted attrition. For a nominal increase in OPEX during overlap, businesses benefit from predictable revenue without a strain on sales & production leaders to do so.
Headcount Turnover Strategies: Reactive vs Proactive
What is a Reactive backfill strategy for headcount turnover?
A Reactive backfill strategy waits for employees to leave before the process of replacing them begins.
What is a Predictive Backfill Strategy for headcount turnover?
Proactive backfills forecast attrition, beginning the hiring process before an employee quits or is fired
Comparing Proactive vs. Reactive Headcount Turnover Strategies
Reactive headcount turnover is great when companies or individual departments use attrition to change strategy, job leveling, organization structure, role expectations, or other key inputs to the eventual backfill. This gap in employment allows leaders the time to be strategic about each role on the team. The downside to a reactive turnover strategy is the gap in production from exit to the new hire’s fully ramped status.
Proactive headcount turnover strategies are excellent for predictable & consistent staffing requirements, especially when tied to revenue or other measurable production. This strategy reduces pain from understaffed teams, creates a positive onboarding/training experience, and produces more consistent revenue & production. With revenue-producing and production adjacent roles, it becomes easy to calculate the financial justification.
Calculating the Financial Benefits of Proactively Backfilling | A Simple Example
How do you prove that hiring more people costs less? Let’s look at an oversimplified example, highlighting a common scenario in revenue-producing inside sales teams.
One of your sales reps is quitting in May.
Sellers make 1 dollar per day in Salary and 2 dollars a day in revenue ($365 in OPEX costs per year, ($730 Revenue)
Revenue Ramp time is 1 month
60-day time to fill for inside sales backfills
Headcount Turnover Savings from Predictive Backfilling
Predictive Backfilling adds one month of OPEX at 30 dollars of spend but generates 3 more months of revenue after the ramp than reactive backfilling. This is a net gain to the business of $154 Dollars (184 in revenue for 30 dollars of cost)
There are also intangible benefits to predictive backfilling, as it eliminates the addition of a revenue-urgent P0 (high priority) backfill, creates predictable training & onboarding for the new employee, and delivers flat revenue to the Sales Leader.
Headcount Turnover Cost of Reactive Backfilling
Reactive Backfilling saves two month of OPEX ($61) of spend but costs 3 months of revenue ($184) after the ramp period of the new seller. This is a net loss to the business of $123 ($184 in revenue lost for for $61 dollars of OPEX savings)
There are also intangible costs to reactive backfilling, as it creates a revenue-urgent P0 (high priority) backfill, creates unpredictable training demand, and hurts revenue for the Sales Leader.
Headcount365 helps TA & Finance build a revenue focused hiring plan, by unifying the data used by Recruiting, Finance, and HR to solve problems like headcount turnover. Read more about our insights & analytics here
Other Considerations in Predictive Backfill Strategies
Our simplified example proves our concept of drawing a total headcount linear regression line through headcount variance but does not account for a real-world impact on this process. Here are a few things to consider when drawing your own regression model.
External Attrition Predictability: Bonuses, commissions, average employee tenure, and other events impact employee attrition rates & timing. Mapping your attrition to major events helps improve future forecasts.
Internal Mobility: Backfills don’t just happen when people leave. Predictable internal mobility improves the economic viability of predictive backfilling.
People Ratios: Managers, Trainers, Onboarding staff, and other service providers are contingent upon total headcount and scale with plan.
Recruiting Capacity: Predictive backfilling means predictable recruiting capacity.
Strategies to Incorporate Into Your Predictive Headcount Turnover Strategy
Performance Management: One of the most common times people exit, whether planned or unplanned, is during the performance review cycle.
Flexible Start Dates: Future start dates in offer letters, or flexible start dates for cohorts help businesses meet OPEX targets.
90-Day Attrition: Sometimes, hired employees don’t work out. Planning for 90-day attrition improves OPEX & revenue performance.
Accepted not Started: Time kills all deals— including candidates starting at your company. If you are using flexible start dates, this rate is likely to increase. Having a good handle on ANS roles improves OPEX and Revenue performance.
Headcount365 Creates More Effective Headcount Turnover Strategies
Headcount turnover planning is hard enough without reliable, accurate data. A live Recruiting Forecast helps leaders manage the impact of backfill demand on recruiting capacity. Headcount365 unifies the headcount turnover story into one streamlined dataset to easily visualize turnover data, recruiting capacity, and financial impact.