How profitable is human resources management?
HR impacts profit but it’s not as visible as functions like sales, marketing and customer success. The reason behind this is that the impact is not direct. HR impacts the functions that have a direct impact on profit.
The question is “how profitable”? The answer to that depends on the quality of the HR function. Looking at a metric such as new hire turnover, research shows that best practice organizations can increase new hire retention by up to 50%. Total turnover cost is estimated between 100 and 300% of a person’s salary. Assuming a company hires 1,000 people a year with an average salary of $70,000 and a turnover cost of 200% that equates to a saving of $70M each year by using best practice HR. That’s a big impact on profit and just one metric.
Over the long term measures like revenue per employee will tell you how effectively a company is utilizing its employees, but HR is not the sole contributor to that metric.