Your Cost-Per-Hire Analysis

Since the height of the first tech-boom, this Consultant has been working with startups and, since Seattle was my home in the mid-90’s, tech firms (i.e. hardware, software, p.c. production etc.,) have consistently been a reliable source for new business.

Accordingly, while all organizations are concerned about expenses, it’s been this Consultant’s experience that the smaller the organization, the more likely they are to scrutinize each dollar spent. That said, the biggest factors likely to impact spending are profitability and ROI. Potential clients want to know what the return in their investment will yield; therefore, over the past two decades, this Consultant has utilized various industry standards and techniques, as well as statistical protocols, to highlight true expenditures and few expenditures cause as much consternation for an organization than those related to recruiting and hiring.

Therefore, for any client that finds itself in a high growth mode, a cost-per-hire analysis is SOP (standard operating procedure). As a result, for purposes of illustration, I’m enclosing a cost-per-hire analysis that was conducted for a former tech client. At the onset of this particular engagement, the client requested that the primary objective of this Consultant’s engagement was to direct the hiring 74 new employees (in the most cost-effective method possible) within twelve months.

EXAMPLE: The figures were as follows:

Goal – Recruit and Hire 74 Employees (for a year-end headcount goal of 138 employees).

• Headcount as of 09/01/2013 = 64.
• Headcount effective 11/30/2014 = 138
• Attained goal as of 11/30/2014

The most accepted metrics used to determine how much it cost Company X to recruit and hire these 74 employees involved data collection and cost comparisons for an IT startup. The information SHRM supplied was part of a 2016 SHRM/EMA National Staffing Metrics Study.

According to SHRM, the costs included in a cost-per-hire analysis include the following:

• Advertising; On-line internet services;
• Third party agency fees;
• Recruiter salaries/costs;
• Reference checking;
• Background checks;
• Travel costs for candidates;
• Meals for candidates;
• Lodging;
• Sign on bonus awards and
• Relocation allowances.

The total Company X spent for the aforementioned client was $208,900 (according to the CFO)

• $208,900 – This figure excludes the five retained search agreements since this Consultant did not actively source and recruit for these positions. After factoring in the additional five heads from the retained search agreements, the headcount goes from 69 to 74 for a total cost of $408,839
  • $208,900 divided by 69 = $3,027 per hire
  • $408,839 divided by 74 = $5,524 per hire

SHRM’s 2016 Published Study indicates that the average cost-per-hire is:

• $4,129 per hire (SHRM Regional and National Sourcing)
• $3,840 per hire for Non-Exempt Labor (Local Sourcing Methods)

2015 Study conducted by the San Diego chapter of the AeA indicated that the average cost-per-hire in the San Diego for a high tech community is $9,800+.

• $9,800 per hire (or roughly 300%+ greater than the exempt figure published by SHRM in 2016)

The total dollars saved by this HR Consultant on the clients behalf:

• 69 Employees compared to SHRM’s exempt figure = $72,935
• 74 Employees compared to SHRM’s exempt figure = $103,230

How and why was Company X’s cost-per-hire figure so much less than either the SHRM?

1. # 1 Reason: Limited overhead costs.
2. Extremely limited use of agencies and retained search firms.
3. Pre-planning with candidate travel taking advantage of cheap flights.
4. Excellent process flow and organizational efficiency in an attempt to reduce unnecessary costs associated with candidates traveling to San Diego on multiple occasions.
5. The securing of a cost-effective method for conducting background checks in a timely manner.
6. Continuous focus on how to save the company money in the recruiting and hiring process.

During the course of this engagement, this Consultant tracked and published the statistics for the recruiting function; for purposes of illustration, the month of September included the following:

• 1,236 resumes obtained and reviewed.
• 212 cold calls/sourcing of candidates who are working within our space.
• 228 phone screens.
• 117 phone and in-person interviews.
• 17 Offers extended.
• 15 people hired.

For additional information on cost-per-hire data, please check out the links below. Additionally, if you’d like to conduct your own cost-per-hire analysis and/or benchmark that data against your specific industry or geographic location, the links below will provide you with the necessary data.

https://www.shrm.org/ResourcesAndTools/business-solutions/Pages/Benchmarking-Service.aspx

https://www.shrm.org/about-shrm/press-room/press-releases/pages/human-capital-benchmarking-report.aspx

Call me and let’s discuss: 773-807-8437

Mike Russell
Principal Consultant
Organizational Development Solutions
773-807-8437
www.orgdev-solutions.com
https://www.linkedin.com/in/orgdevsolutions/