Cost-per-Hire or Impact
I have a good friend of mine who is a regional operations leader for a large retail company, with responsibility for dozens of stores, thousands of employees and hundreds of millions in sales each year. And, while he values the function of HR, he expresses regular frustration with his recruitment team because they do not understand how a vacancy impacts his operation. The impact to sales, customer service and his existing workforce is significant resulting in a very real impact to his business unit’s financial performance. He feels like recruitment is always in a ‘cost containment’ and ‘compliance’ mode rather than considering how an increase in spend, shift in strategy, proactive planning, new technologies and innovative processes might actually net a positive ROI for the company. I would encourage any HR leader who is fighting for a seat at the executive leadership table to allow this to sink in.
Are you consistently taking into consideration how decisions you are making impact the financial performance of the operation? Are you speaking with your constituents about how your department can help drive the business forward? Have you designed application systems and process which begin to treat candidate like employees far too early in the recruit process or that limit accessibility? (ie. collecting to much information, to soon, resulting in disengagement and abandonment OR systems which do not allow applicants to apply via mobile)
Anyone who has spent time in the recruitment industry expects a measure of performance to include cost-per-hire and time-to-hire. I wonder though if we spend too much time talking about these individual items versus the sum of what they equate to. Is a focus on cost-per-hire and time-to-fill the right conversation to be had, or a part of a much deeper consideration which should also consider the actual financial business impact an opening has on an organization, otherwise known as the cost-of-vacancy (COV)? In my experience, HR leaders focus on cost-per-hire and time-to-fill as ‘objective’ measures of recruiting performance, while many organizations have no reliable mechanism for actually measuring them. The result often times is a guestimate, which I have historically found to be much lower than reality. Either way, the net result is a potential lack of understanding of the realized COV and resulting overall cost of recruitment. Recruitment should be thinking about these items with the added perspective of an operations mindset.
According to the 2015 Talent Acquisition Factbook, a Bersin by Deloitte study, the average cost-per-hire for entry-level staff is $3,584. For a full-time position paying $9 per hour and an average time-to-fill of 35 days the estimated cost-of-vacancy is $2,268. If these numbers are accurate, the total cost of recruitment for this exercise would be $5,852. If, however, the organization spent an additional $250 to get the job filled by let’s say leveraging a new sourcing channel and as a result reduced the time-to-fill by 5 days to 30 it would realize a $324 reduction in the cost-of-vacancy. The net impact is a $124 savings per hire, which by itself may not sound like a lot, but for an organization hiring in volume it adds up fast. If you begin to take into consideration higher paid hourly positions and management roles, the numbers only multiply. This means an investment of time and hard dollars into things such as additional / better performing sourcing channels, improved recruiting systems, mobile friendly applications, additional headcount and improved hiring efficiencies could net your organization tens of thousands of dollars per year in reduced recruiting costs. The added benefit is you get the attention and respect of operations leaders.
So how can you get started?
- Get an understanding of your cost-per-hire … Do not over think it … simply add together all of your labor costs, associated benefit costs, sourcing costs, etc. and divide it by the total number of hires on the year; Be sure to include any 3rd party fees realized by the company in this calculation; If you cannot get access to this data, use industry benchmarks as a place to start
- Begin to measure your time-to-fill … I would recommend to actually measure to the start date; Leverage industry benchmarks if you do not already have this information and partner with your technology providers to figure out a meaningful way to capture moving forward
- Begin to educate yourself on the topic of COV … A google search on cost-of-vacancy will get you started; There are also some tools online at http://www.dreamjobsna.com/understanding-costs-of-recruitment/ which may prove beneficial to you
- Look for opportunities to drive down your overall cost of recruitment; Remember, it is a two sided equation … Cost-per-Hire + Cost-of-Vacancy, so reducing your CPH could actually have a net negative impact; New technology innovations and sourcing channels may provide you with significant gains
- Talk to your operations partners about what you are up to
As HR leaders we are in a unique position to influence the businesses we serve. The question is will we engage in conversation and strategies which will have a net positive impact to the financial performance of those we serve or will we be too heavily focused on cost containment and compliance? The decision on which direction to drive the conversation is yours.
What'chu talkin' 'bout? Cost or impact.