HR metrics: Surprising truth about reducing cost-per-hire

 

Do you take all costs into account when you measure cost-per-hire? That is, staff time, travel costs, etc. If you do, Steven Rothberg is guessing that you’ll notice something about on campus recruiting versus online recruiting. Rothberg is the president and founder of College Recruiter and has both depth and a breadth of knowledge of employers’ HR metrics, and how they tend to use cost-per-hire, as well as how smart employers reduce it.

Think cost-per-hire is the best way to measure the performance of your recruiting team? Think again. Read Steven Rothberg’s insight below about the best key performance metric, and more.

Do most talent acquisition leaders even include cost-per-hire in their HR metrics?

Rothberg: I believe that most talent acquisition managers are measuring cost-per-hire but few are doing it well. In our world of college recruiting, for example, many of our customers advertise their job openings on sites like College Recruiter but also travel to various schools to interview students on campus. It amazes me how few of those employers include their staff time and travel costs when calculating their cost-per-hire at those schools. SHRM and NACE have each published one-sheet guides to calculating cost-per-hire and one of the key components is staff time.

Two years ago, virtually none of our employer customers were willing to have a conversation around how many candidates they actually needed us to deliver, in order for them to hire enough people. They didn’t even know how many applications they would typically receive for each hire.

Now, there are tools out there that will tell employers that if you get, say, a thousand people clicking to your site, you’ll probably see about 100 applications, and if you get 100 applications you’ll probably hire four people, for example.

According to SHRM’s 2016 research report, the average cost-per-hire is $4,129. Read their report of benchmarking other HR metrics. 

Best way to calculate cost-per-hire 

Rothberg: As simple formula would be:

(all recruitment costs in a given time frame) / (# of hires in a given time frame)

However, “recruitment costs” is somewhat subjective as two reasonable people could differ as to its meaning. Do you include only out-of-pocket recruitment costs such as advertising and career fairs or do you also include travel costs, staff time, and other such costs? SHRM and NACE both advocate including those factors and I agree with that approach.

How can employers reduce their cost-per-hire? 

Rothberg: Many of our customers tell us that their cost-per-hire through candidates hired online (some refer to that as “virtual” recruiting) is about 10 percent of what it costs to hire the equivalent employee through on-campus recruiting—that is if they properly include all of their costs including staff time. To reduce your cost-per-hire, spend fewer resources interviewing on campus, and more of your resources online by advertising your openings at sites such as College Recruiter.

A big reason why digital recruitment advertising has become even more cost effective is many job search sites now offer pay for performance options. The job boards that are thriving have begun to migrate from a “post and pray” model (duration based postings where an employer buys a posting package for a certain period of time, regardless of the results). Instead they are rapidly shifting to pay for performance. Pay for performance is typically pay-per-click: the candidate sees the job on the job board, they click the apply button, they go over to employers’ ATS and the job board is paid for that click.

Related: Confused about pay for performance? Get a peek behind the curtain

Another way to reduce your cost-per-hire is to increase your interview-to-offer and offer-to-acceptance rates, which you can do by targeting candidates who have fewer employment opportunities. For example, when you’re hiring entry-level sales people, do you really need to hire recent grads from Big 10 schools or would students from local community colleges actually accept at a higher rate and stay with you longer?

Who has been successful in reducing their cost-per-hire, and how?

Rothberg: Lockheed Martin is a shining example. I moderated a panel and one of their college recruiters was a panelist. He said that their cost of hiring candidates virtually—through job search sites like College Recruiter—was about 10% of what it cost-per-hire the equivalent candidate through on-campus recruiting. That part wasn’t surprising to me. What did surprise me was when he said that the virtually hired candidates greatly outperformed their on-campus counterparts. He explained that the candidates hired virtually tended to be from second or third tier schools and therefore didn’t have the employment opportunities that the students from the elite schools had. As a result, the virtually hired candidates tended to stay longer with Lockheed and therefore performed far better.

Why should TA professionals should worry if their cost-per-hire is too low

Rothberg: A very low cost-per-hire could lead to low quality hires, as the people to which you’re extending offers might be desperate and might accept any offer. Low quality hires tend to lead to poor performers and high turnover, both of which lead to lower profitability.

Having said all that, to measure the performance of a recruiting team, cost-per-hire as a key metric is falling out of favor. This metric is actually better suited to evaluate the performance of hiring managers. To measure the success of the recruiting team, cost-per-qualified-applicant is better, as it is their job to present quality applicants to the hiring managers. At that point, the hiring managers need to decide who gets offers and convince those people to accept the offers.