Cost Per Hire
While calculating cost per hire (CPH) is not an exact science, it can be a valuable instrument that gives insight into the cost of the hiring process for various positions and do some comparisons. Cost per hire can also allow companies to evaluate how effective they are with various sourcing strategies in the hiring process. However to be most effective, a company should look at all of the factors that contribute to the cost per hire.
Many contributing factors have to be considered when calculating the cost per hire of an internal recruiting team. The first factor is the recruiter who is a fixed cost since he or she is an employee of the company. Then hardware related costs have to be added in such as the computers and the telephones. Expenses to get the word out about open positions like job fairs, job boards, referral bonuses, and the applicant tracking system will also need to be added into the cost per hire calculation. Finally add in training, on-boarding, and turnover costs. Once all those costs are added up, the total cost per hire can be determined. This total cost per hire is essentially the same whether a company is hiring an inexpensive person or an expensive person because it is the same person doing the recruiting. When recruiting internally, it is also important to remember that the recruiter is a fixed capacity so he or she cannot handle any surges in hiring.
The alternative to recruiting internally is using a recruiting agency for hiring needs. The cost per hire with a recruiting agency should encompass most of the items that are calculated into the cost per hire of using an internal recruiter
One option is using a contingency firm, who gets paid only when someone is placed into a position. Contingency firms typically charge 15- 30% of salary. This means if a company is hiring an employee who will be paid $50,000 a year, the contingency firm will charge between $7,500 and $15,000 per hire. This can be a very hefty fee. The other option is to utilize a recruitment process outsourcing (RPO) firm. An RPO allows companies to outsource a part of the recruitment process or the entire recruiting function. RPO’s typically result in a cost per hire of 5 – 10% of salary compared to the 15 – 30% that a contingency firm charges. Using the same $50,000 salary as before, an RPO would typically result in a cost per hire of $2,500 to $5,000. Even by comparing the lowest CPH for a contingency firm with the highest price for an RPO, there is a minimum savings of $2,500 over a contingency firm.
When a company is faced with any level of volume hiring, the savings to the firm with an RPO exponentially increase. This is one of the areas where real value is delivered. Think of the cost savings of using an RPO versus a contingency firm to hire, for example, five sales personnel with $50,000 salary. This could be a savings of $7,500 to $50,000!
Utilizing an RPO such as Hire Velocity, a company can achieve a more cost effective cost per hire while delivering flexibility and scalability in meeting hiring needs…especially in this market when many internal recruiting teams are at their smallest size. Additionally, the RPO helps the company avoid any of the fixed cost elements of the Cost per Hire calculation.
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A New Way to Look at Cost Per Hire
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/
Byron West
President
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Temporary Employment On the Rise
The American Staffing Association began compiling data related to temporary and contract employment in June of 2006. Since then, the ASA Staffing index has served as an indicator of the level of temporary employment across the country. During the early months of 2007 & 2008, temporary employment hovered around the 100-point mark. However, with the onset of the recession, we saw a steady decrease in the later months of 2008. This remains consistent with the previous state of our economy.
This past July, temporary employment hit rock bottom and has since risen 23%. The significant increase doesn’t seem very evident on the graph in comparison to previous years, but in contrast to the steady decline we saw in November and December of 2008, the increase is reassuring.
So what does this mean for businesses, the recruiting industry and the greater economy? Temporary employment has always served as a great indicator for the direction in which permanent employment will head. With temporary employment increasing throughout the past two months and a relatively small drop in temp employment in the last week of the year, we can expect unemployment to decrease in the near future. Since August of 2009, unemployment has remained around 10%, but as we begin the new year, temporary employment indicates that the unemployment rate will once again fall below 10%. A strong recovery is not clear, but a recovery nonetheless is nearing. With the beginning of a new year, we are excited to see a recovery in the staffing and recruiting industry.
Karaer, Alexandra. “BLS: Temporary Help Continued to Add Jobs in December.”
Staffing Week: n. pag. Web. 14 Jan. 2010.
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Byron West
President
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Let us help you HIRE the BEST, FASTER and PAY LESS
Improving Candidate Experience
With 18 days till Christmas, many people are beginning to notice the elaborate Christmas decorations in malls, airports, and grocery stores. But why do so many retail centers choose to spend so much money on Christmas decorations, which they will be taking down a month later? One explanation is to improve the customer’s shopping experience. If a mall chooses not to decorate during the Holidays, customers will most likely choose another, more festive mall for their next shopping spree. The whole idea of improving the customer’s shopping experience seems to be common knowledge in the retail world, but why do recruiters overlook the applicant’s experience?
One explanation may be that there are so many applicants; it just isn’t feasible to ensure each applicant has a good experience. Well, isn’t that the case in most retail situations? An average Wal-Mart store serves over 3,000 customers per day, which exceeds the number of applicants most recruiters see per day. Thus, it’s just as feasible to ensure an applicant has a good experience as it is to ensure a customer at Target has a good experience. The next question would be, how important is it to ensure the applicant has a good experience?
After simply emailing unselected applicants, saying that someone more qualified has been given the position, we received great amounts of feedback telling us how much that simple email meant to them. With 10% of the country unemployed, it’s easy to overlook the importance of your company’s reputation in the hiring process, but in years to come, when unemployment goes down, the steps you take to improve your reputation for giving the applicant a pleasant experience will mean a lot. For example, if you apply for a job at a Consumer Goods company and are treated poorly, that could be a determinant in which product you choose at the grocery store. Your brand name is everything, and it includes your reputation in the hiring process.
Something that should not be overlooked is how easy it is to improve the candidate’s experience. Many applicants will say that no response from a company at which they applied would classify that company as failing to provide a good experience for the applicant. Therefore, it is as easy as creating an automatic response in your ATS (Applicant Tracking System) to thank the applicant for applying and giving them a little knowledge about their current status. In addition, mass emails to those applicants which failed to qualify, will also shed a more positive light on your company.
Simple steps such as these can help to improve your brand name, which can prove to be crucial in tough hiring times.
Byron West
President
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Let us help you HIRE the BEST, FASTER and PAY LESS