A New Way to Look at Cost Per Hire
Several recruiting experts across the board say that cost per hire is irrelevant, and in most cases they are absolutely correct. When cost per hire is not calculated correctly, its value is relatively minimal.
PwC Saratoga’s most recent report on the United States’ Human Capital Effectiveness, cited that the average cost per hire was $2,658 in 2007, a 4% decrease from the previous year. The report uses six different elements, which are taken into consideration when finding the cost per hire: Advertising, Agency and Search Firm, Referral bonuses paid to employees, Relocation costs, and Company recruiter costs. These elements seem to cover most of the costs, which are related to hiring, but Figure 1-A shows all costs related to an individual hire, sometimes overlooked by companies. These additional elements of the hiring process can even double the cost per hire. However many talent acquisition experts believe that the statistic is still completely irrelevant to the hiring process. Todd Raphael of ERE LLP, says that the cost per hire statistic reveals nothing. He refers to an occasion in which Texas Instruments even paid $25 million to retain a techie, but his productivity was worth well more than that. And to his point, not all employees are created equal. Even fast food restaurants have steep changes in compensation between a manager and a cashier, but used in the right context, cost per hire reveals a rough estimate on hiring costs. Statistics like those by PwC Saratoga show cost per hire across the board from a macroeconomic point of view, but its true effectiveness is found when comparable positions are averaged together. The cost per hire of an executive drastically differs from that of a customer service representative. The statistic may not play a large role in determining whether a company should hire an executive as quality can often cover the costs. Yet, in most other cases, cost per hire allows companies to focus on the means by which they go about the hiring process and whether tools like job postings or agency fees are truly necessary.
Several companies have edged away from cost per hire, and have seen their hiring process become increasingly costly. If consumers lost sight of the price of a cheeseburger at McDonalds versus Wendys, there would no longer be a dollar menu. Thus, it is essential to use cost per hire as an instrument that gives insight into the cost of the hiring process.
US Human Capital Effectiveness Report: Executive Summary. http://www.pwc.com/us/en/hr-saratoga/publications/2008-2009-human-capital-effectiveness-report.jhtml. PwC Saratoga, n.d. Web. 21 Jan. 2010.
Todd Raphael “Cost per hire: don’t even bother“. Workforce. FindArticles.com. 21 Jan, 2010. http://findarticles.com/p/articles/mi_m0FXS/is_6_81/ai_87509062/
Your trusted HIRING PARTNER
Let us help you HIRE the BEST, FASTER and PAY LESS