How Contractor Training Reduces Operational Costs

September 29, 2016



The sharing economy business model is growing so quickly in part because of the willingness of workers to serve as contractual employees paid either by the hour or by the number of jobs completed. Many now prefer to set their own schedules and work for as many (or as few) employers as they wish.

But that is also the source of one of the principle HR challenges of the sharing economy: How does the platform engage, train and retain these valuable external partners when they can leave for another gig at any time?

Traditional corporations and high turnover industries such as retail, customer service and hospitality have battled employee churn for decades. And it’s easy to see why — it costs a lot to replace an employee who voluntarily exits the position.

A Center for American Progress study backs that up: In 2012, CAP analyzed the cost of replacing an employee based on his or her salary level. The higher the salary, the higher the cost to replace.

Overall, employee churn costs around 20 percent of the departed employee’s salary. That’s money better spent elsewhere with the organization, such as retaining those valuable employees or developing new products.

The Society for Human Resource Management (SHRM) puts that estimate even higher. According to SHRM, replacing workers can cost as much as 60 percent of the employee’s annual salary.

Some of the expenses directly attributed to an employee exit include finding and training a replacement; lost productivity and lowered customer service while a new employee ramps up; and even the cost of a hiring a contractor until a permanent replacement comes on board.

Related Reading: Why Sharing Economy Companies Require On-Demand Training Solutions

Contractor churn in the sharing economy

Sharing economy executives may look at those figures and think, “Those are for full-time employees. I have a contractor workforce. What’s the churn cost to me?”

Since the sharing economy model is a new phenomenon still undergoing many changes in the contractor/platform relationship, equivalent statistics have yet to be definitively calculated.

However, a recent study by workforce management solution provider PeopleMatter comes close. Specifically, this survey examined how companies manage their hourly workers.

In PeopleMatter’s 2014-2015 How Hourly Workforces Work survey, respondents rank hourly employee churn as a significant problem. Moreover, they report an annual turnover rate of 49 percent, leading to an average churn cost of $4,969 per hourly employee.

Instead of footing the bill for churn, try these three ways to retain your contractors:

1. Train to make contractors more efficient

The better trained contractors are, the better able they are to provide good customer service and consequently bring more profits to the platform. Several research reports support that conclusion.

One oft-cited example is the Cheesecake Factory. The restaurant chain invests about $2,000 yearly to train each employee. The payoff comes in the form of sales topping $1,000 per square foot, double the industry average.

Likewise, a study from the American Society for Training and Development (ASTD) underscores the impact of training on the bottom line and finds that spending more on training ultimately pays off in superior revenues. Companies that invested $1,500 per employee on training (versus $125) registered higher gross profit margins of 24 percent on average and a jump of 218 percent in revenue per employee.

Again, those studies emanated from a traditional corporate setting. But training can be successfully implemented in the sharing economy world, especially with a digital training program embedded within the platform.

Related Reading: These 7 Metrics Tell How Effective Your Onboarding and Training Are

It’s easy to understand how beneficial training can be, particularly to the sharing economy workforce. Contractors serve as the face of the brand. They must perform the basic duties of the job and, more importantly, know how to interact with consumers. An easily accessed training program — mobile capability is a must — provides that instruction and makes workers more efficient and effective.

2. Make professional development a priority

Learning and Development (L&D) programs can be a powerful contractor retention tool, especially in a heavily consumer-facing field such as sharing economy enterprises.

Steven W. Schmidt of East Carolina University undertook a detailed study of the relationship between a positive job training experience and overall job happiness. He surveyed more than 500 customer and technical service employees within nine major corporations in the US and Canada. He came away with the conclusion that there is indeed a “high correlation between job training satisfaction and overall job satisfaction among employees in customer contact positions.”

When workers are satisfied, they stay on the job. So invest the dollars you’d spend on finding a new contractor after one quits into a great L&D program to keep current contractors from straying elsewhere.

3. Show them it’s more than just another job

Of course, contractors want to get paid, and they want to get paid well. They crave a chance to upgrade their abilities so they can reach higher levels of earnings and expertise.

Offering a comprehensive training program for contractors equips them with more knowledge and skills, which they can then parlay into a higher income -- for themselves and the platform.

Providing a L&D program indicates your platform is making a serious investment in its contractor workforce and views them as true professional partners. It shows you’re looking out for them and helping them succeed on the job. Through training, demonstrate that this isn’t the same old job and that the sky’s the limit in terms of earnings and professional development.

Increasing the bottom line

Professional development of your contractor workforce leads to many operational efficiencies and cost savings. First and foremost, you’re not continuously sinking dollars into finding more and more contractors when others leave. You retain your contractors and you make them better.

Secondly, good training results in fewer contractor and customer support tickets. The more you train, the less money is needed to fund what is typically a costly line item. So dollars spent on contractor training means more cash flow to the bottom line.

Finally, training guarantees your contractors are qualified to fulfill the job, which makes the entire operation more efficient and successful.

Are you ready to reap the benefits of elearning? Learn how to implement your own training program by reading our step-by-step framework.

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