I read your answer to Elisabeth’s question (“What’s the true cost of people leaving” posted on March 4th 2022) on how to put a price tag on the cost of employee turnover – great topic and I loved the answer. Unfortunately, there is a big “but”: when you calculate the value contribution per employee in the example (I did look at the formula!) you use 50% as the share of people cost in operating expenses. How did you come up with that number? And how do I find our what applies in my case?
Great idea to learn from what others ask 😊 Since the basic concept & formula is clear to you – congrats, you are nearly there! The 50% are the result of dividing the total Operating Expenses (OpEx) by the total people cost (including base salary, benefits, bonus, tax, social security…). We used the 50% in the example simply because that number is in a range that applies to many companies. But whether it’s 35%, 47% or 62% in the case of your organisation – the answer is just one chat or phone call with your Finance colleague away. You as HR professional sure know where to find the total people cost (one part of the equation) and for your Finance colleagues, Operating Expenses are a well known term (after all, it’s part of every financial statement and Annual Report). If your Finance colleagues ask you if you want the number including or excluding “Cost of goods sold”, the answer is: excluding. It could be however, that in your company a different term is used for OpEx – in some organisations it is called “Overhead” or “Selling, General, and Administrative (SG&A)”. When you get the answer from your Finance colleague, just divide the OpEx by the total people cost – and that’s your number to use in the calculation of value creation per employee.
That’s it – should be difficult to find out “your” share of people cost in total OpEx – and then you are ready to run your calculation.
F-Top Coach / Ursula