Debunking The Cost-Per-Hire Myth

By Gary Grosso
Posted On 8/08/18

Cost-Per-Hire; could quite possibly the most misleading number in the staffing and recruiting industry. According to the Society of Human Resource Management, the Cost-Per-Hire is comprised of the internal and external recruiting costs divided by the total number of hires. In short, it’s the amount of money a company spends on hiring a person.

However, when it comes down to it, the cost per hire, in this recruiter’s mind, is a very misleading calculation. When evaluating the true Cost-Per-Hire, the metrics should point towards what the open position costs the company, not simply the cost to hire a new resource. This includes factors that affect the cost of having that seat open such as a change in overall scope and delivery, or even the net effect on your projected Return On Investment. Once these factors are examined, weighed and calculated that’s when you will really discover the true cost per hire.

Innovation The Name Of The Game

Innovation is the name of the game, and companies are investing a ton of money to come out on top and ahead of the competition. However, this extra budget does not always find its way to the talent acquisition team, and more often than not, those recruiting are dealing with an increased request load with no additional resources deployed to fill. This could be a recipe for disaster, putting you, your team, and your projects behind the 8 ball. Open seats cost a lot of money, perhaps more than you are admitting.

With open positions sitting around, managers find that many projects may be put on hold or the development timeline may have to be altered.  Ultimately, this could result in a longer delivery timeframe, disrupting the efficiency or cost savings you were trying to build in the first place. Furthermore, you do have competition out there. Time to market is key and delays make it easier for the competition to step in, win the business, without putting up much of a fight.

Let’s Pretend For A Minute

For example, say you have a team working on a 6-month project creating software that will save your company $1.5M annually ( $125K Per Month) if everything goes according to plan. Then out of the blue, you had a resignation or even two,  turning that 6-month deliverable into a 9-month deliverable. So, what’s the real cost of that empty seat if it takes your internal team 60-90 days to fill? It’s certainly not the measly cost of a posting or a recruiting teams’ time.  It’s well over $250K, which further resulted in cutting the expected savings from the project for the current year. The problem is that numbers get lost in the books. Perceived savings are not real savings and don’t affect current budgets. But, don’t kid yourself, the $250-$375K of savings not realized would have been welcomed in these budget mindful times.

The Real Formula

After breaking it down, the real Cost-Per-Hire has much more to it than just the recruiting costs of filling a position. What really matters in this equation is factoring in the traditional Cost-Per-Hire formula (what it takes to physically hire them) plus the opportunity cost per day multiplied by the total amount of days it took to fill the position. Now, this number is much higher than the original cost per hire calculated by most companies but is a much more realistic when it comes to evaluating the true cost of hiring someone.

It All Ads Up-But You Can Stop It

Although it may be easy to dismiss what we have presented as bad math or unsubstantiated logic,  I think there is an obvious reality that withstands just about any logical attack. Delays in research development and delivery do in fact negatively impact your bottom line and shouldn’t be ignored when looking at the true cost per hire equation. Is this difficult to track? Sure it is, but it doesn’t mean the effect is not real. What it does mean, at a purely basic level, is that the cost per hire model is flawed and it is cheaper and smarter to fill that open position within 30 days if you can. Even if it means calling in a firm like Living Talent to get it done.

Our fees, in the grand scheme of things, matter very little when you are watching millions of dollars in opportunity and productivity going down the drain. If you are a manager who has had to scrap a project or defend yourself to the board as to why a project was not delivered as promised, most people would agree that the real cost per hire, in hindsight, was just not worth it.

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