Do counter offers from applicants catch you off guard causing you to pay more for the hire than the job is worth to the company? It can happen if you are not prepared.
Don Miller, the author of Storybrand and Business Made Simple, recently told a story about hiring. He went through the steps of his process. He defined the role, posted the job, reviewed the applications, called references, did a 60-minute zoom interview, did an in-person interview, made a job offer and the candidate accepted the job.
According to Don, the applicant came back just before joining the company and said, “I have two children I just decided to send to a private school and I need you to increase my salary in order to pay for that.” What would you say? You can’t pay more than the job is worth so you have to take the time to determine that worth.
It’s a bit like bidding for houses in a hot market. The heat of the moment can hurt your company because you are emotionally not prepared to start another search. Before you make the offer you have to decide what the job is worth to your company. If they need more than the job is worth to the company you have to take a pass.
Irrigation Technician Example
Let’s look at a simple example. If you are hiring an irrigation technician, you can’t afford to pay more than he can possibly earn. How many hours in a year can you keep him employed for your part of the country? Or, how many months is your busy season?
For the sake of simplicity assume you can employ him for 1,000 hours per year as an irrigation tech. Of that 1,000 what percent of that time is billable? Some green industry software generates reports on billable hours percentages.
David Crary, the founder of HindSite Software, made it a priority to track his tech's billable percentages when he operated his irrigation company. Strangely enough, as he tracked it (and posted the results) he got better billable hours percentages.
He stated it was not unusual to get 90% billable time percentages. His billable hour percentages were closer to 50% before he started tracking the percentages with HindSite Software. He didn’t get into 90% until he had been tracking the measure for a while.
Ninety percent of 1,000 hours would be 900 billable hours. If the rate you are charging is $75 per hour then $67,500 is the max you could pay for the position. It wouldn’t matter how many children he needed to send to private school!
If $67,500 is the max he can generate. How much can you afford to share with him? I would subtract the cost of overhead, vehicle, and the profit due to the owner.
By determining the value of the job you’re hiring for, you can avoid the temptation to accept counter offers from prospective employees that are greater than the value of the contribution. Even more fundamental; how much value can this role add to the company? When you have calculated the value as part of your hiring process you won't be tempted to overpay and hurt your operation.