27 Dec eBook: Calculating Cost Per Hire Can Help Better Understand the Revolving Door for Cannabis Employees

Headset, an analytics service provider for the cannabis industry, recently released a report titled The Revolving Door Factor: The Impact of Budtender Turnover in the Cannabis Industry, which analyzed cannabis stores through a direct integration to their point-of-sale system for the states of Washington and Colorado. The report looked at the state of turnover in the cannabis industry using sales data from individual employees, and examined everything from turnover rates at the typical store to seasonal employment trends.

The synopsis of the report is that staff member who works within a dispensary or store where medical or recreational cannabis is sold (budtenders) don’t stay at a job for long. In fact, only 40% make it past the first month, nearly 60% of employees don’t last past two months, and only 14% last beyond three months. According to the report, a contributing factor to turnover is seasonality.

Tis the Season

For staffing shortages. Headset determined that in both states, turnover spiked in August. It spiked again in Washington in October and in Colorado in December. An end of summer slump makes sense as a general trend. To make new hires worth the time and cost, retention is critical, otherwise any hiring dispensary will be bleeding time and money instead of growing the business. But before we get into some reasons why budtenders may be jumping ship so frequently, it might make sense to look into what the true cost of adding a new employee is, and take a deeper look into ‘cost per hire.’

What is the Cost Per Hire?

The cost per hire (CPH) is the standard human resources metric for determining how much money a business will have to invest into a new employee. You cannot determine if adding employees is a good investment or not until you first understand the costs. CPH is a formula and methodology for putting a financial number on all of the time and effort it takes to fill a vacant position. Each company will have their own CPH figure, based on their own internal hiring and recruitment practices. CPH is useful in setting budgets and in deciding when to expand the company’s workforce.

How to Accurately Calculate Cost Per Hire

In 2012, The Society for Human Resource Management (SHRM) and the American National Standards Institute (ANSI) collaborated to develop a standard CPH formula. This formula is now widespread and is considered to be the most accurate way to assess CPH. The formula itself is simple, but gathering the data and making the actual calculation can be labor intensive for the uninitiated.

Cost Per Hire: The Formula

In other words, you add the total internal and external recruiting costs and divide that dollar amount by the number of new hires that were brought on during the period that the recruiting costs were expensed. In mathematical terms, CPH is an average. It is the average cost of adding an employee.

Now let’s break down the difference between Internal Recruiting Costs and External Recruiting Costs. External recruiting costs includes all the money the organization, in this case cannabis stores/dispensaries pays to outside vendors for recruiting services and related products. Again, depending on the organization’s process, external recruiting costs could include:

• Fees paid to an outside agency
• Fees paid to job boards
• Fees paid for background checks and drug testing
• Cost of aptitude tests
• Marketing expenses specifically for recruitment (such as job fairs)
• Relocation expenses
• Cost of any application tracking systems

Internal recruiting costs refer to the amount of money the company spent on existing employees as part of the recruitment and hiring process. Depending on your organization’s process, internal recruiting cost may include:

• Salary costs of time spent by hiring managers
• Salary costs of talent acquisition team members
• Employee referral bonus payments

Keep in mind that Money paid to an employee once they are hired is not part of the CPH calculation. This means costs such as signing bonuses and training costs are not reflected in CPH. Those are generally considered employee development costs.

Selecting the Time Period

The final step in calculating CPH is to select the time period. The standard is to calculate CPH for a year. Each company will need to decide if they use a calendar year or the fiscal year.

CAPH can also be calculated on a quarterly basis or after a particular season. Some firms bring on a lot of new employees during the summer and fall, after college graduation. There may be some use in seeing what the CPH is for this “hiring season”. However, because the calculation can be labor intensive, most firms will only need an annual CPH.

Mastering the CPH calculation allows human resource departments to adequately plan for new talent acquisition. It makes budgeting more predictable and can be used to determine if the organization is spending too much or too little in its recruitment efforts.

So now that we’ve determined how much each hire costs, let’s look at the cannabis industry and see how best to address the ballooning turnover issue.

Cannabis Industry Growth and Opportunity

With the industry expected to grow from $9.2 billion to $47.3 billion over the next decade within the U.S alone, it could be that the growing opportunities available allow budtenders to choose and hop between employers within the industry, meaning that dispensaries need to compete against one another to retain employees. Alternatively, it could be the management, burnout, being overexerted or under challenged.

The running of a dispensary requires management to constantly assess staffing costs and needs for the changing demands of the business. However, too much attention to the needs of the business and too little on employees can lead to the overworking of staff, burnout and an unpleasant working environment.

Possible Solutions

Although the cannabis industry in still in its nascent stage, OROleafhr, a provider of tailored HR services and payroll solutions designed specifically for the cannabis industry, has seen positive trends in retention around Recognition and Reward, and providing Benefits.

Recognition and Reward

A cannabis dispensary’s employee schedule may not necessarily be constant from week to week, which can cause missed opportunities and events in their personal lives. If employees aren’t given recognition for their contributions and sacrifices towards the dispensary’s success, they can feel alienated and undervalued, causing them to look for somewhere where they will be appreciated.

According to Gallup research, an astounding 70 percent of U.S. employees are not showing up to work fully committed to deliver their best performance. That is why recognition and rewards of employee performance is so important. In doing so, they will see their work is appreciated and continue to remain engaged and productive. The reward itself doesn’t need to be large or over the top, even a few words of praise can be enough or an annual bonus.

Recognition encourages engagement from team members and employees tend to stick around for longer when they feel they are valued in the workplace.

Benefits

With no shortage of potential workers, cannabis industries need to boost their offerings to hire and keep their employees, and benefits are one of the surest ways to improve employee satisfaction. Nearly 60 percent of employees say benefits are “very important” to how they feel about their job and their company, and employees who are satisfied with benefits are almost four times as likely to be satisfied with their jobs. Of those benefits deemed most important to employees are Health Insurance and Retirement benefits.

Health Insurance

Across all generations, employees say health insurance is the most important benefit their company can offer. A full 40 percent of employees in a Glassdoor survey ranked health insurance as their most-preferred benefit, edging out vacation (37 percent) and performance bonuses (35 percent).

Unsurprisingly, the link between health insurance and recruiting and retention is strong. More than 45 percent of employees told Towers Watson that their company’s health benefits were an important reason they decided to work there, and 55 percent say these benefits are an important reason they stay with that company.

Retirement Benefits

Retirement benefits, such as a 401(k) or defined benefits plan, are growing increasingly important in recruiting and retaining employees.

According to Towers Watson, 35 percent of employees say retirement benefits were an important reason they decided to work for their current company. Another 47 percent say these benefits are an important reason they stay with that company. Retirement benefits are also growing in importance, particularly for young people. Within a two-year span, the percentage of workers younger than 40 who told Towers Watson their retirement program was an important factor in accepting their job jumped from 28 percent to 63 percent.

Every dispensary is different and every team is a collaboration of different personalities. There is no “one fits all” solution, but increasing the standard of employee management with an emphasis on improving the employees experience and sense of value will help to boost employees’ job satisfaction.

About OROleafhr

OROleafhr provides tailored HR services and payroll solutions designed specifically for the cannabis industry. Whether a cannabis business is just beginning to bud, or a seasoned veteran, OROleafhr has the tools and resources to help build businesses by improving efficiencies while reducing liabilities.

Realizing that no two clients are the same, OROleafhr tailors each service package specifically to the customer, giving each client exactly what they need and nothing more. Looking for payroll processing? OROleafhr has it. Need human resource consulting, employee benefits, workers compensation, risk management services, or just one or several of these services? OROleafhr will customize the best solution for your business. Contact us today!

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