Is Measuring the Cost of Hire sufficient to prove Effectiveness?

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As every in house recruiter knows there is a priority to reduce the cost of hire. If you don’t then you should. Many of the initiatives that flow through the corporate landscape are justified before or after by the forecasted or realised cost savings; whether it is creation of a PSL, a new ATS, increased head count to reduce use of agencies or to reduce time to hire etc., it all comes down to RIO.

There are those in house recruiting structures that strive for a perfect direct souring model; one that is motivated by the business need to reduce agency and search dependency and therefore the cost of hire. There is nothing wrong with that at all and for many would be a sound justification.

But what about considerations given to the quality of hire? Have you given thought to how much it would cost you to make a Bad Hire? Estimates vary on this one from a few months of Total Cost to Company (TCC) to 3 years. TCC is salary plus bonus plus Fringe Costs (in a sales environment add in commission guarantees well). The reason it can be so high is not only the cost of the original hire and the wasted salary to that person, but the cost of the replacement, the lack of productivity the poor hire contributed and then the training and ramp up time of the replacement hire.

If your poor hire is also potentially one of your consumers then the impact of the poor hire could run into millions of lost revenue over the lifetimes of that person and their extended family. It is a stretch I know, but a risk easily calculated. Another impact will be the detrimental impact to the Employer Brand of your company. Now I appreciate that Employer Brand is promoted, protected and impacted on so many levels but the experience a candidate has or employee has (regardless of how long they stay with the company)will without doubt influence other people’s perception of your company as a place to work as part of their career aspirations.

What might be the impact if the poor hire was a senior member of management or in a high profile position? Wouldn’t that have an adverse impact on the reputation of the organisation not only from its customer but its investors as well?

With these thoughts in mind, is a focus on the reduction in the unit cost per hire a real indicator of improvement and gained efficiencies? Shouldn’t we be looking at the seemingly unquantifiable ‘Quality of Hire’ and promotion of or impact to ‘Employer Brand’? Both tend to get overlooked outside of the recruiting teams, possibly because the benefits can only be measured over a longer period.

Focusing on the Candidate Experience and the Quality of Hire, obviously with an eye on the costs are key considerations for me because they offer potentially massive long terms gains for the business as well as the reputation of my teams, whereas the cost of hire is typically a short term metric relative to the past or current fiscal period.

So is Measuring the Cost of Hire sufficient to prove Effectiveness? I would say No. What do you think?

A work in progress and interesting to hear thoughts on this, especially what areas can positively affect the Candidate Experience, Employer Branding and Quality for hire?

Social Media, yes;
Employee Engagement, yes;
Referral Programs, yes

– what else?

    • Andy Hamiltron
    • February 13th, 2011

    Good post Gary.

    Time to Hire, TTH ot Turnaround Time, TAT is also useful. Clearly important for business critical roles, but also for staff morale reasons if there is extra work being picked up for too long.

    This is always best to be used as one of a number of metrics, such as others that you already mention and some ongoing review i.e. customer sattisfaction survey’s and new hire follow up like workshops and survey’s.

    If you are measuring how long it takes to fill a role, regular review milestones are to crucial to enure you are not compromising on uqality of hire or ‘panic buying’. (not to be confused with being flexible if of course the perfect candidate actually doesn’t exist!).

    • Thanks Andy, how do you define Turnaround Time at yours?

      The trouble is that the unit costs i.e. Cost of Hire tends to influence the budget planning, whereas a wider perspective is needed. What data is needed and how is it quantified so it can come together as a business justification rather than just a discussion point.

      Interesting that the Cost of Hire is being discussed at DSTT meeting this week and The FIRM is scheduling and event on the same subject

    • Andy Hamilton
    • February 13th, 2011

    TAT – vacancy approved/ authorised to offer – 30, 60 & 90 day sla role level dependent. Common sense is used and my company is of a size where you can priortise where necessary.

    It works well and both recruiter and line manager are measured to ensure both delivering against tier accountabilities. Again, you have to keep focused on the goal so that you reduce danger of under hiring.

    Although I have a CPH that I use for forecasting purposes, it is the direct vs agency ratio that I focus on more. If this is right, the cost looks after itself up to a point. We also have real difficulty accurately predicting volumes as we are a BPO business driven by new Business, so we re-forecast regularly.

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