As you’re no doubt already aware (see How the Human Capital Driver Enhances Your Business), employees are your company’s most important asset. Unfortunately, COVID-19 has had the unexpected effect of reducing available employees long after the initial outbreak. Many economists and business owners expected that 18 months after the pandemic began, employees who had been laid off would return to work; however, this has not been the case. At the end of June 2021, there were 10.1 million job openings, which is a record high, and the labor force participation rate was 61.66% — not yet matching the pre-COVID-19 rate in February 2020 of 63.3%. This poses an urgent problem for business owners.
Weighing the True Cost of Hiring or Not Hiring
In the current labor market, many businesses face the real prospect of losing value because they cannot hire or retain good employees. If you cannot hire enough employees to meet your customers’ needs, you may start to lose those customers. In addition, without the right employees, your business will not be able to grow. If each of your current employees is operating at maximum capacity, your business cannot risk taking on new customers because your employees will not be able to provide the same level of service to existing customers, which could prompt long-time customers to leave and, potentially, could damage your business’s reputation. If you push your staff to operate above maximum capacity for long periods of time, you will create employee burnout and see some of your team members resign.
As a business owner, you need to know how much money your business loses by turning away potential new customers because you cannot hire enough employees. You should also know how much it costs to acquire a new customer and how much profit each customer generates. That way, you’ll be able to compare how much each customer is worth to the amount you’ll need to spend to hire and retain more employees to serve them. Increasing pay or benefits could attract new talent, which would increase the customer acquisition cost and increase profitability but decrease your profit margins. Can you increase your prices to offset the increase in wages? If you are not able to pass this increased cost to your customers, you need to determine how this cost will affect your profit margin. Then, decide whether a (possibly temporary) decrease in margin is acceptable to hire a new employee who will enable you to generate more revenue.
If your competitors are lowering prices, it may be necessary to lower your prices to keep customers. However, if your company is offering a high-quality product or service, you should set prices accordingly, so you need to know your worth. Decreasing prices solely because the competitors are doing so isn’t necessarily the best decision for your business. Knowing how much profit is generated per customer and conducting other cost analyses will help you make these types of strategic decisions.
If you conclude that higher wages are the correct decision for your businesses, you’ll need to manage the dissemination of that information. Will the wage increase be across the board and commensurate with experience, or will it primarily benefit new hires? Employees who have worked at the business for years at lower wages may not view the increased wages of new employees as a positive. This dynamic can create animosity between existing and new employees, which is terrible for corporate culture.
And disgruntled employees have plenty of options, because the competition for employees (as well as customers) has never been more fierce. All business owners need to monitor the actions of their competitors. If all your competitors are increasing wages, you may have to do the same just to keep your employees. But losing employees can be even more expensive than paying them more: If you are not able to fill those positions, your customers may notice a change in the quality of your product or service and go elsewhere.
Attracting and Keeping Great Workers
A strong and stable workforce will increase the value of your business. So what measures are you taking to attract and retain good employees? For some good ideas, take a look at the way COVID-19 has changed employees’ feelings about working in an office. The pandemic forced many businesses to incorporate working remotely. Employees saw firsthand that the company can operate just as smoothly as it did when they were required to sit at their desks from 9 to 5. Instead of requiring everyone to return to the office full time, offering employees a more flexible schedule that allows them to work from home certain days each week can boost morale. In addition to remote work options, vacation policies are evolving from the antiquated two weeks per year to something that offers employees better work/life balance.
Launching a continuing education program is another great strategy for attracting and retaining talent. Depending on the nature of your business, building a formal training program could be expensive, perhaps involving some initial capital expenditures. But employees recognize that investment, and they feel valued when a company spends time and money on their training and education. New employees will remember that your company trained them when they were starting out, and that will instill loyalty to your company. Also, employees respect consistent company practices, and with a well-designed and organized training program, your staff will all be trained in the same procedures and best practices. In contrast, if new hires are trained haphazardly, by various people with different approaches, they may learn some bad practices or outdated procedures. Best of all, high-quality employees constantly want to learn more, and if you invest the time to continually train them, you will end up with a highly skilled workforce, satisfied customers, and a strong reputation.
Your employees are your most valuable asset; they are the driving force behind your profitable business. If you want your business to grow, you’ll almost certainly need a larger staff, so determining how best to attract new employees will be critical. But keep in mind that even as you acquire new employees, keeping your experienced staff is also essential. Your business will command a higher value because your strong and stable workforce has nurtured a loyal customer base. Furthermore, the continuity of your workforce is important not just for running day-to-day operations smoothly but as a testament to your company culture. If you have employees who have been with the business for 10, 15, or 20+ years and there is low employee turnover, that stability shows that you have created a work environment that people enjoy. It may be necessary for your firm to invest in additional resources to support several of these changes; however, these incremental investments are very likely lead to a happy and stable employee base, which will drive the value of your business.