Most employers today are using a personality assessment tool as part of their hiring process. And the reasons are clear. Employees are likely to stay longer and contribute more when they are the right fit for the job they're doing, and when their personality meshes naturally with the culture their employer is striving to build.
But while the value of personality testing at a high level is clear, less obvious is how to quantify that value. How should employers measure ROI for a personality assessment solution? How should they pay for an assessment tool, and to whom should they distribute it?
Answering those questions necessarily begins with a look at some of what a good personality assessment product should do for an employer.
The first and most important measure on which to judge your assessment solution is whether it helps you retain employees longer. In most businesses, turnover doesn't get as much attention as other expenses because there is no line for it on a typical profit-and-loss spreadsheet. But make no mistake: Low employee retention is one of the biggest drags on corporate profitability. Studies have calculated that replacing one employee can cost anywhere from 50% to 400% of the departing employee's annual salary.
To understand how the problem is affecting your organization, start by calculating your turnover rate. Determine the period you want to measure, then divide the number of full-time-equivalent workers who left your employment (voluntarily or otherwise) during that period by your average number of employees during the same period. For example, if you started 2015 with 70 employees and ended it with 90, and 16 people left your organization last year, then your 2015 turnover rate was 20%.
For most industries, turnover is increasing as the U.S. labor market improves. In 2013, the average turnover rate for all industries was 15 percent, according to CompData Surveys. Last year, it had risen to 16.7 percent. But turnover varies widely by industry; those characterized by large numbers of hourly workers endure much higher rates. For example, according to the Bureau of Labor Statistics, about 5 percent of workers leave retail jobs every month — or about 60 percent a year.
Now let's look at how much turnover is actually costing you — and how boosting retention can redound to your bottom line. Suppose yours is a mid-sized professional services business with 50 employees, and an annual turnover rate of 20 percent among employees who earn $80,000 a year. Assuming the lowest-end replacement cost of 50 percent of salary, turnover would cost your organization $400,000 a year. But in truth, employees at that level cost closer to 150% of annual salary to replace, or about $1.2 million
Reducing your turnover by a quarter, to 15 percent, would save your business $300,000 a year.
A retail chain with 1,000 employees earning an average $9.75 an hour and a turnover rate of 60 percent will spend $5.85 million just on employee replacement costs each year. Cutting the turnover rate to, say, 40 percent would save the business nearly $2 million.
Those are eye-popping figures, and they go a long way to explaining why so many employers have made retention their primary human resources objective, even among lower-earning employees. A good personality assessment product is not the only element of efforts to reduce turnover, of course. But it can play an important part, because employees with the right personality traits for their job and their employer's culture are happier and more engaged — and such employees stay longer.
You should also judge your personality assessment solution based on how effective it is in helping you find high numbers of high-quality candidates. That means your assessment needs to be designed to identify the traits you're looking for, which may require a customized solution. And you need the assessment to be completed by a large number of your candidates (and preferably your existing employees, too).
Many assessment tools are plagued by low completion rates because they ask hundreds of questions and can't be taken on a mobile device. So what you're looking for is a tool that your candidates and employees will complete and that produces actionable data. Our tool, for example, is customizable based on employer needs, takes only about 90 seconds to complete, and has a completion rate above 94%.
Many employers limit the individuals taking their assessment to new candidates, or new candidates for key positions.
But our view is that everyone should take a personality assessment. For one thing, although salaried employees are usually more expensive to replace, hourly workers have much higher turnover rates. Moreover, the data you glean from an assessment is more valuable when you compare it with your existing employees performing the same or a similar job, as opposed to the general population. Finally, having actionable insights into your current and on boarding employees' personality traits will help you build more effective and productive teams. Of course, that means that the tool you use will have to be priced competitively as you scale up.
Not all personality assessment solutions are the same. Yours is delivering value if it's truly helping you reduce turnover, hire better candidates, and build better teams. For advice on how to deploy personality data in effective team-building, download our new guide. And for a deeper conversation about measuring ROI on assessment solutions, just reach out.
