Building vs. Buying Talent
Which delivers better ROI for auto dealers?
And then one day out of the blue he sends you his two weeks’ notice after taking a gold-plated offer from a competing dealership.
This new development puts a serious wrench in your plans… and it’s not the first time it’s happened. You’re now faced with a choice: Do you promote from within or try to attract an up-and-coming manager from another dealership to replace him?
Your sales team is strong, but none of them possess the kind of leadership skills or experience needed to take on a management position. So, you post a job listing, promote it, and land a good candidate for the job… a month and a half later.
But what did hiring from outside cost, and was there a better alternative?
Do you promote from within or try to attract an up-and-coming manager from another dealership to replace him?
Most general managers don’t have much of a choice. They hire external candidates for management and other senior-level positions because they simply don’t have the in-house talent pool available.
But it doesn’t have to be that way — you can build talent internally with focused training and career development. So the question is: in terms of return on investment and return on effort, is building talent better than buying it? And once your talent has arrived, how do you get them to stay?
In this ebook, we’ll run the numbers and show you perspectives on this problem that you may not have considered.
• The Cost of Buying Talent
• The Cost of Building Talent
• The Verdict
• How To Build a Talent Pipeline
• Planning for Your Dealership's Growth
When it comes to hiring mid-level and senior-level talent, dealerships almost always recruit from the outside. That comes with a number of costs, both direct and indirect.
Direct Costs
Job boards — If you want your job listing to be seen by a decent number of candidates, expect to pay $500-$1,000 for posts and promotional services.
Recruiters — For senior-level or specialist roles, you may need to hire a recruiter… which could cost $15,000 or more per position filled.
Indirect Costs
Lost revenue — The average time to fill open positions for small to midsize businesses was 41 days in 2019. Finding the right match for a job may take even longer today, thanks to a tight job market, talent shortages, and demographic shifts.
In the meantime, your store will be understaffed. If we estimate the lost revenue per day for a single employee to be $1,000 — a conservative number — then 41 business days is more than $41,000 in lost revenue. All the while, your customer experience suffers.
Internal resources — Hiring external candidates is a resource-intensive process for a dealership. GMs or other senior team members will spend many hours poring over resumes, interviewing, and onboarding. That’s time that isn’t spent on other key priorities.
Onboarding time — Outside employees take longer to get up to speed than internal hires. In the best of cases, it could take several months before they’re operating at full efficiency. During that time, you’ll likely be spending more on their paycheck then you’re getting back in value.
Fact: Outside hires are 21% more likely to leave than internal hires. Source: Deloitte
Other Factors
Loyalty — If a manager or senior-level employee is leaving their current dealership for your job opening, what’s to keep them from leaving your dealership for a better offer?
Culture — How will an outside hire fit in at your organization? Will the people they manage be happy with them? Will they create friction within their team and with other co-workers?
A misplaced hire can damage a strong workplace culture, and there’s a lot about a person that doesn’t show up during the interview process.
Outside employees take longer to get up to speed than internal hires.
You’ll always have to hire for entry-level positions — sales consultants, service advisors, porters, and entry-level service techs to name a few.
But if you’re smart about who you hire for those positions, you can develop them into management and senior-level talent. But is the investment worth it?
Direct Costs
Training — A good rule of thumb is that an effective training program costs about 5% of the trainee’s pay. For an employee making $76,500 each year, training would cost around $3,800 annually.
Technology — Effective training requires software tools such as learning management systems. The costs of these tools vary depending on headcount, but licenses may cost a few hundred to a few thousand dollars per year.
Tip: A good rule of thumb is that an effective training program costs about 5% of the trainee's pay.
Indirect Costs
Time — Training takes time out of employees' workdays, during which they won’t be participating in revenue-generating activities.
Other Factors
Effectiveness — Training isn’t one-size-fits-all, and finding the right approach for your circumstances can make or break its effectiveness. One-day seminars and classroom style training (the “shotgun” method) aren’t universally effective, and the knowledge is unlikely to stick if it’s not supplemented with additional training. Targeted, personalized training based on adult learning science (the “rifle” method) is more reliable, but also more of a long-term commitment.
Loyalty — Internal promotions are more likely to stick around than external hires. When lower-level employees see they have a career path, they’re also less likely to leave.
Internal promotions are more likely to stick around than external hires.
Culture — When you hire from within, you already know that your new manager is a good culture fit. That takes a lot of the unknown out of handing the reins to someone new.
Timing — If you’re starting from scratch with a talent development program, it will likely take 2-3 years before you can start filling manager and senior-level gaps in-house.
Positive externalities — Even if employees that go through training don’t end up being management material, chances are their performance at their current role will improve anyway.
Taking direct and indirect costs into consideration, the answer is clear: building talent delivers better ROI and ROE than buying it.
Buying Talent
$500 - $1,000
Job Boards
$15,000
Recruiter Fees
$41,000
Lost Revenue
$56k+ per hire, plus time
and resources
Building Talent
$200/YR
Software License
$3,800/YR
Training Costs
As little as $4k per
employee per year
When you rely on external hiring, you end up spending more time and money to recruit and onboard employees who are more likely to leave and less likely to be good culture fits, while spending more time operating at reduced capacity (and losing revenue in the process).
When you promote from within using talent you’ve developed, you can fill vacancies faster with more loyal employees who will be able to hit the ground running.
You can fill vacancies faster with more loyal employees who will be able to hit the ground running.
Although it will take time to build your talent pipeline, the best time to start is now. Incoming economic and demographic shifts will continue to make outside hiring harder and more costly.
The sooner you can get started cultivating talent, the more advantage you will have (and the more market share you can capture during a promising economic recovery).
1. Build a smarter recruiting strategy for entry-level positions
When was the last time you went through your own recruiting process? Do you know how long it takes, how much effort is involved for applicants, and whether there’s any friction along the way?
A poorly-worded job listing, an overcomplicated application, too many rounds of interviews, or slow response times can all drive away promising candidates, so it’s crucial to optimize the recruiting process.
Reach your audience — To get the best possible candidate pool, you need to get your application in front of a lot of people, but also the right people. Consider how you can diversify your recruitment channels beyond the typical LinkedIn and Indeed approach.
Make applying easy — Keep your online application system streamlined and up-to-date to put your best foot forward. Make the process simple, mobile-enabled, and cut down on unnecessary hurdles that will drive high-value prospects away. Consider automation options for encouraging applicants to go back to incomplete applications.
Streamline the interview process — Schedule fewer interviews with more stakeholders to maximize information sharing and standardize the selection process using clear, established metrics.
Tip: Look to hire future managers, rather than someone just qualified enough for the job.
Think ahead — Look to hire future managers, rather than someone just qualified enough for the job. Then you can develop those employees into your next generation of leadership.
Aim for speed — Quality entry-level talent may receive multiple offers in a competitive market. The time elapsed between selecting a candidate and completing pre-employment procedures may become key to landing your hot prospect. Standardize the practices that are necessary to your long-term success, and consider cutting those that aren’t.
Communicate clearly — Cross your t’s, dot your i’s, leave no stone unturned. However you want to phrase it, make sure you’re clear when you make an offer. Set expectations early on and give clear next steps to your new hire. Remember, the quickest way to demotivate an excited new team member is to promise one thing, then give them another.
Standardize the practices that are necessary to your long-term success, and consider cutting those that aren’t.
2. Build a talent development strategy
Just as fine-tuning your recruitment requires effort, so does maintaining an effective talent development strategy. Substandard training and coaching can lead to disappointment for everyone involved as performance suffers and employees become disengaged, while putting in a little extra effort to your development strategy can produce a lot of ROI.
Customize and target potential — Precision produces results. Most managers develop talent using a “shotgun” approach that distributes investment across a wide selection of workers. Studies show that this seminar approach is not effective. By changing to a “rifle” approach that identifies and enhances the potential in an outstanding employee, you can get better results.
1-on-1 performance coaching — Individual instruction is labor-intensive, but it gets results. Set regular performance coaching “check-ins” to make sure that your future stars are getting the kind of education and support they need. 1-on-1 meetings are also valuable for troubleshooting problems in your management style or company culture before they drive skilled salespeople and technicians to other dealerships.
Long-term reinforcement — When you don’t take training seriously, neither will your employees. Education and team building shouldn’t be a one-and-done event. The more energy you put into long term objectives, the better the results you’ll see.
Track performance over time — By keeping tabs on sales performance, customer experience, and other important metrics, you gain valuable insight into what training is working best. Performance tracking should also be used to reinforce training, as employees will be more engaged when they can see the results for themselves.
Turn to a trusted partner — Building a talent funnel takes time, effort, and expertise. Many dealerships find that the best way to develop an in-house talent pool is to hire experts to help.
At JM&A Group, talent services is one of our many offerings. As people who grew up in the automotive world, we can provide expertise, talent champions, and plug-and-play data services to take on many of the toughest talent development challenges your dealership will face.
3. Walk the walk
When it comes time to replace a senior employee, promote the talent you’ve been cultivating. By advancing prospects internally, you create a culture where hard work and good performance are rewarded, which in turn inspires other driven employees to work hard.
Benefits of Building a Talent Pipeline
$50k or more in Hiring Savings
Improved Performance
Reduced Turnover
Improved Morale
Higher Revenue
Don’t embark on this journey alone. JM&A Group uses advanced research to create a brighter future for dealerships that want to stop turnover and build a sustainable team.
Through our Dealer Talent Services, we help dealerships build and streamline their talent development pipelines using:
- Data-driven training
- More efficient recruitment
- Leadership workshops
- Personalized 1-to-1 coaching
- Customized management guides
- And more
Our services help you find the best people, then develop and retain them. That way, you can maximize profitability and improve employee morale while keeping your investment in house.
Ready to start building the talent pipeline of the future at your dealership?
Contact JM&A for a free consultation. Our talent experts are ready to discuss a custom plan to solve your talent equation with recruitment and retention solutions.
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