CEO-to-CEO: The Math of Recruiting
Dear CEO:
Alongside our roles as visionary/architect for our businesses, and the necessity of full-scope oversight, talent acquisition is a primary function for every CEO.
Building an organization is fundamentally about developing an environment conducive to the growth of personnel who provide goods and services to clients and customers.
The better the environment, which includes recruiting, training, and career-nurture, the longer the right people will want to stay with you and help you to build. An ideal, harmonious work culture is one in which employers and employees collaborate to help one another grow.
Entry-level hiring and training is essential for most businesses—especially ABA businesses. Our industry is in its early stages—plenty of demand from the public for services, not nearly enough supply of competent, faithful clinicians.
When we consider the cost/benefit analysis of hiring clinicians, we must understand both the static and dynamic features of the “numbers game.”
The static considerations are relatively simple. Leaving aside the costs of overhead, recruiting, training, etc., we ask “what is the marginal expense/revenue effect of adding a given clinician?”
If revenues, less direct expenses for payroll, billing, admin, etc., are greater than zero, having that clinician on your team adds to your bottom line.
For example, if you are reimbursed $60/hour and it costs 20% for directly-related overhead ($12/hour) and your gross payroll expense (including taxes, benefits, and ongoing training) is $33/hour, then that clinician is contributing ($60 – $12 – $33 =) $15/hour to your bottom line.
The next step is to factor in the cost of recruiting. If it costs an average of $3,000/recruit for advertising, interview, background check, credentialing, and onboarding to the point of readiness to bill their first hour, and your raw static profit margin is $15/billable hour, then it will take $3,000/$15 = 200 billable hours to cover the cost of recruiting.
If the tech in this scenario bills 10 hours/week, then it will take 20 weeks to get to breakeven on that tech (200 x $15/hour profit = $3,000 recruiting costs). If they bill 20/hours/week, then it will take 10 weeks to get to breakeven instead of 20, because they billed faster.
(Actual costs and revenues will vary by location, but I don’t think these hypotheticals are too far from what we experience in Virginia.)
Economic analyses of the cost of new hires across multiple industries commonly report average breakeven happens between 4-12 months out from the start-date, with longer durations generally correlated to more complex/expensive roles. So, if an ABA practice can get new recruits to breakeven within 10-20 weeks, that’s pretty good. It might take a bit longer, depending upon other factors too—especially retention rates.
Unfortunately, ABA tech turnover is high. Some techs won’t ever get to 200 billable hours. So in order to fully incorporate the whole cost of recruiting into our static profit-calculation model, it means that either:
(a) we write off the losses for techs who leave before completing 200 billable hours as part a capital expense of the startup/expansion, or
(b) we calculate “breakeven” on the techs that do stay as further out on the timeline.
Both perspectives have legitimacy.
From a standard accounting perspective, the second approach holds. Recruiting is counted as an ongoing business expense, not a capital expenditure.
At the same time, as a practical matter, start-up and expansion costs will almost always tear into short-term operational profitability.
The reality, therefore, is that unless all recruits leave in the short-term (say, within ten months), accurate business planning requires allowance for early recruiting “fails” as effectively a capital expense.
That means that while you enjoy tax write-offs for extra recruiting costs related to the techs who don’t work out, for planning purposes you should give yourself a break if you don’t immediately recoup those losses via the other techs. It takes more than a few months to build a great ABA team, and that team can produce for you for years.
Still, if we can offset the cost of failed recruits with extra billables from the more successful recruits, that’s great because then we know we can keep recruiting with confidence that total recruiting costs are recouped in the short-term.
This brings us toward the bridge between static aspects (fixed, short-term metrics) and the more dynamic (longer-term) aspects of cost/benefit analysis.
Statically, we could conclude that each new tech individually generates a profit for your organization for every hour they bill after creating enough gross profit to cover your average cost of recruiting.
Let’s say that the average cost of recruiting a tech is covered by profits on their first 200 billable hours. So, we use that as a benchmark to identify that person as net-profitable to your organization after say four months (or however long it takes the average tech to bill the hours necessary for your gross profit margin to cover the cost of recruiting them).
But while the benchmark is useful, it is only one angle by which you measure financial value. It does not tell the whole story. They may add to or subtract from your culture in terms of attitude, non-billable contributions, and other intangible pluses or minuses.
You may also want a second benchmark which considers the losses you incur related to all the other techs who never made it to 200 hours. If you want to mentally calculate how many billables you need from the techs who stay in order to make up for the ones who don’t, you might determine that those who stay need 350 billable hours before the entire group averages the 200 necessary to cover all the recruiting costs.
Now you have two significant benchmarks—four months (200 billable hours) to cover the direct cost of recruiting the individual successful tech, and seven months (350 billable hours) to also cover your losses relating to the techs you recruited who didn’t stick.
Such benchmarks are useful because if you know your costs and determine for instance that keeping an average tech four months covers your cost recruiting them and seven months covers your other recruiting costs as well, you enjoy the comfort of knowing that your business is self-capitalizing the cost of adding personnel on a seven-month cycle. Seven months is your “breakeven” target. After that, your acquisition costs are covered and your gross profit/tech goes to your bottom line.
As you grow, your practice also naturally gets stronger. As you retain and train your techs, they become more experienced, and your team’s quality improves. The cohesion and relationships developed, in turn, add potential to adopt and retain even more new people. You grow both qualitatively and quantitatively, albeit sometimes “two steps forward and one step back.”
A general benchmark in any business across multiple industries is “one year to breakeven.” Some businesses take multiple years, and there is no way around that. But if within 12 months you can cover the costs of launching or expanding from gross profits directly attributable to your additional personnel or other investment, that’s strong. A 12-month risk window is a relatively short route to net profitability. We find that most ABA practices can recover the cost of recruiting in well under 12 months.
But that’s not the end of the story. A new business is like a baby tree. At the beginning you just want it to take root and survive its first winter. The second year is easier. As it grows, you enjoy the beauty and the promise. But the fourth or fifth year—that’s when things get interesting. The right tree (tech) becomes a trusted leader in your organization—perhaps a BCBA—and produces far more than an entry-level tech.
The real dynamic considerations come into play over time. Maybe only one tech out of 10 becomes a BCBA or BCABA, or maybe only one out of 20. But that diamond can also offset many thousands of dollars invested in others who didn’t stay with you. You might pay a good BCBA a $100,000 salary, but they could add many times that much value to your practice over time.
And you cannot know for sure who will stay and who will go. Cultivating trust is about evenhandedness across the organization.
Sure, you reward great performance and dependability with raises and other perks, but confidence in faithful good treatment, and consistent application of policies and procedures, is critical to a tech’s decision to put down roots and build a career with you.
Back to the business of static versus dynamic cost/benefit analysis.
Static calculations are short-term, cashflow snapshots—zero-sum equations without regard to future implications. If I pay my tech $2/hour more, I make $2/hour less. (And that’s true for a minute, but changes over time.) Static calculations are crucial for those without substantial capital. You need the business to bootstrap itself—to fund its own growth.
But dynamic considerations make all the difference ultimately. The greatest potential for sacrificing small profits now for big returns later—especially within the ABA industry—is about growing personnel. You can break even, or even lose money on a static analysis, but still come out way ahead not too many years down the road.
Again, if you are starting on a shoestring, as we did in 2014 with our first ABA practice, ABC Behavior, there is no money to “play the long game” and wait years for a paycheck. Some shortsightedness is a necessity.
But the more you take time to look down the road, and plan accordingly, the more you can do for your team because you can begin to think about how to make them successful. This sort of approach, for example, led us to begin recommending a grad school plan to every tech from their very first interview.
My thought was—this is an entry-level job for a career in ABA. Few remain in the industry very long as techs. Most either go on to become BCBAs or quit. So, I told them that up front. Many said they wanted the job, but that there was no way they were interested in going back to school. We hired them anyway, and now they are BCBAs.
A final example:
After successfully founding ABC Behavior in 2014, along with our management team, Stephanie and I launched the Hi-5 ABA franchising organization in 2018.
Since then, we have plowed millions into developing our systems and personnel. In 2023 both companies are finally profitable, so we hope that they will self-capitalize going forward. We are growing nicely, but as owners who are deeply involved in the day-to-day, we have never paid ourselves wages from either company and possibly never will. Everything they earn goes back into growing the network and brand.
My point is that what I am describing here is the process by which we have built our companies. We lived on very little as we started, and stayed lean as we grew. We prioritized building our people and systems ahead of personal income.
The process isn’t instant. One can only grow so fast. Patience is essential. And, I dare say, we survive and continue because our heart is in our work.
Without financial success, no business can live; but without a sense of calling, or purpose, I don’t see how anyone can sustain the joy and passion necessary to build a great business. And that joy and passion—that sense of purpose—is the greatest gift you can offer your people.
A shared sense of mission, with lots of continuing education and healthy work-life balance—that’s the ultimate dynamic variable to the recruiting equation.
Be sure to read our previous blog on Expanding Quality Services.
