How Contractor Training Reduces Operational Costs

Nikki Engel ·

Feb 26, 2021

The sharing economy business model continues to grow. This is due, in part, to the willingness of workers to serve as freelancers, “gig workers,” or contractual employees. Under such an arrangement, they are paid either by the hour or by the number of jobs completed. This affords the employee increased flexibility around when and how they work, for as many — or as few — employers as they wish.

But this boon to employees 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 and hospitality have battled employee churn for decades. And, it’s easy to understand why — it costs a lot to replace an employee who voluntarily exits the position.

A  Center for American Progress (CAP) study backs that up. 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. By some estimates, employee churn costs around 20 percent of the departed employee’s salary. 

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.

Still, 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?”

Glad you asked! It’s a bit complicated.

Contractor churn in the sharing economy

Since the sharing economy model is still nascent and undergoing changes in the contractor/platform relationship, an apples-to-apples comparison has yet to be calculated. 

But, a study by 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%, leading to an average churn cost of $4,969 per hourly employee.

Whatever the cost, instead of footing the bill for workforce churn, try to improve retention with these three ideas:

1. Train to make contractors more efficient.

When sufficiently trained, contractors are better equipped to provide high-quality customer service and, consequently, earn more profits — both for themselves and the business. Again, we can look to data from full-time employee research for guidance. 

One study from the Association of Talent and Development (ATD) 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% on average and a jump of 218% in revenue per employee.

Again, those studies emanated from a traditional corporate setting. But it’s already been proven that training can be successfully implemented in the sharing economy, especially on digital-first platforms.

In the sharing economy, 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 serve as a powerful retention tool.

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 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 -- once again, for themselves and the platform.

Providing an L&D program indicates your company is making a serious investment in its workforce and views contractors as true partners. It’s a clear signal that your business is helping them succeed in their roles. 

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 sourcing more contractors when others leave. 

Secondly, good training results in support tickets. The more you train, the less funding will be required for what is a costly line item. So, dollars spent on contractor training translates into 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, successful and, ultimately, leads to a better customer experience. 

Want to learn more about training contractor (or “on-demand”) workforces? Read our eBook “Getting Started with Training your On-Demand Workforce” today.


Download the eBook

About the Author

Nikki Engel

Nikki Engel leads Northpass’ product marketing and sales enablement efforts. She’s passionate about helping customers see the true value of every Northpass feature. When Nikki isn’t spearheading product launches, she can be found chasing after her two adorable kids (seriously, ask her to show you some pictures) or renovating her new fixer-upper; watch out HGTV, here she comes.

Read more from Nikki Engel

You might also be interested in ...