Topgrading Costs and ROI

We at Topgrading, Inc. might be a bit biased, but we believe there has never been a human resources or talent method that has so consistently demonstrated anything close to the effectiveness and sky-high ROIs of Topgrading.

Summary: In this article you will see that with typical costs implementing Topgrading, and with very conservative estimates, the ROI for Topgrading a small company (100 employees) can conservatively be 2,437% for managers, and 9,046% for the whole company.  And the estimated ROI for a larger company (1,000 employees) is 12,565% (managers) and 23,647% (total company).

Evidence of Topgrading Effectiveness:  Dozens of named case studies. At www.topgradingcasestudies.com you’ll see 40 named case studies in which the average improvement in hiring was from 26% high performers to 85% high performers — that’s more than a 300% improvement in hiring.  A Ph.D. student at a major university is currently vetting those results as part of his dissertation on Topgrading. The CEOs of all the case study companies vouched for the integrity of the data showing spectacular improvements in talent.  Furthermore, the CEOs say in their own words, that Topgrading has made the company more successful.  These results can viewed in the latest round of Topgrading case studies and were also reported in the best-selling Third Edition of TopgradingPrevious editions had other case studies, and hundreds of additional companies have shown us that companies committed to Topgrading dramatically improve talent, which improves company performance.

We can find no case study of any testing, interviewing, or human resources company that claims even a fraction of that 300% improvement, and we can find no case study in which the CEO says the method made the company more successful.  The stated ROIs of companies purporting to improve talent are a tiny fraction of what Topgraders experience.

Topgrading dramatically reduces costly mis-hires. The Topgrading Cost of Mishires Form is the most used and quoted form of its kind, and we have decades of research showing the average cost of a mis-hire to range from 5 times salary to 27 times salary (depending on the level in the company).   Whenever companies estimate the costs of their mis-hires they are aghast at the high level of those costs.  And with the typical company hiring high performers ¼ of the time, that means that ¾ of the time they actually incur those painful, costly mis-hires.

In performing the research for case studies, they measure their success hiring prior to Topgrading (typically it’s about 25%) and the cost of mis-hires.  In the examples below, for simplicity’s sake we have made much more conservative estimates than what occur in typical case studies.  So we have estimated mis-hires to cost 5 times salary, 8 times salary, and 10 times salary (depending on the level of the job), so that ROIs would be underestimates of the ROI.

With this sort of historical data, let’s take a look at typical, though conservative and hypothetical, Topgrading costs of implementation and ROIs.

EXAMPLE 1: Small Company (100 employees, 10 managers)

To make things simple, let’s not even calculate the value of improved hiring for all 100 jobs, but instead just focus on management.

Suppose:

  • Four managers are hired in the next couple of years
  • Pre-Topgrading the company was average, with a 25% success rate hiring high performers
  • With Topgrading, hiring success doubles to 50% (super conservative)
  • There are 2 mis-hired managers out of 4 instead of 3 mis-hires
  • Conservative costs of that one mis-hired manager are 8 times a base salary of $130,000 = $1,040,000 (though our published research shows 15 times base salary at that salary level), while others waste 200 hours sweeping up after the low performer

So, the company saved $1,040,000 and 200 wasted hours because of Topgrading.

                                                                                                                                                                                                      

Topgrading Costs:

2 managers attend two-day Topgrading Workshop: $5,000

Internal Topgrading Workshop: $25,000

Topgrading annual license: $  2,000* Sample License pricing

Total:    $32,000

Return on Investment: $(1,040,000 – $32,000)/$32,000 = 3,150%

This happens all the time:  Companies begin Topgrading and they are absolutely certain they would have hired Joe, who (after the Topgrading Interview and reference checks with former bosses) would have been a costly mis-hire.  Note the obvious:  Just one avoided mis-hire for the entire company has paid for the implementation of Topgrading 35 times over.

Topgraders report that almost EVERY manager trained in Topgrading improves hiring success, so let’s conservatively assume that in the 5 years since Topgrading was launched, each of the 10 managers avoided just one mis-hire of someone earning $75,000.  They estimate the cost of a mis-hire at that lower level to be 5 X $75,000 = $375,000 X 10 employees = $3,750,000.

Return on Investment:  ($3,750,000 – $32,000)/$32,000 = 11,619%

Example 2:  Mid-size Company (1,000 employees, 60 managers)

Again being very conservative, let’s assume the average manager earns $200,000 and the cost of a mis-hire is a conservative 10 times that = $2,000,000.

Suppose:

    • 12 managers are hired in the next 4 years
    • Pre-Topgrading the company is averaged only 25% high performers hired
    • With Topgrading, hiring success only doubled its success (super conservative) from 3 to 6 high performing managers hired
    • Conservative costs of a mis-hired managers are

     – 10 times a base salary of $200,000 =  $2 million

     –   6 mis-hires X $2 million = $12 million     

     – Others waste 6 X 200 hours – 1,200 hours sweeping up after the low performer

Topgrading Costs:

4 managers attend two-day Topgrading Workshop: $10,000

3 Internal Topgrading Workshops @ $25,000: $75,000

Topgrading annual license: $  5,750* Sample License pricing

Total:    $90,750

Return on Investment:  ($12,000,000 – $90,750)/$90,750 = 13,123%

And if each manager avoided just one mis-hire of someone reporting to them who earns $75,000, with a cost of mis-hire of 5 X $75,000 = $375,00, that’s 60 X $375,000 = $22,500,000  saved, with a ROI of ($22,500,000 – $90,750)/$90,750 = 24,693%

Are those numbers, though conservative in relation to dozens of case studies, unbelievable? Then … 

Example 3:  Your Company.  Instead of our estimated costs of mis-hires, wasted time, and percent hiring success, how about entering your estimates at www.TopgradingCalculators.com?  We do this in workshops and the ROIs of Topgrading are almost always north of 1,000%.

Topgrading in a nutshell:  In case you don’t know, Topgrading replaces screening from (deceptive) resumes, shallow, easily faked competency (behavioral) interviews, and worthless verification (reference checks) with total honesty, the very in-depth Topgrading Interview, and solid verification (reference calls with former bosses arranged by the candidate).

Conclusion: Topgrading, which you probably know is common sense “on steroids,” consistently achieves dramatic savings by avoiding costly mis-hires.  Topgrading is easy and very inexpensive to implement, producing sky-high ROIs.

Published December 10, 2013

 

 

 

 

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