Cost Per Hire
HR Objective – Recruit and Hire (with a year end headcount goal of 138).
- Headcount at that time = 64.
- Effective 11/30/2004, DivX headcount (including those who have accepted offers, but have not yet started) = 138 ~ Attained # 1 objective on 11/30/2004
The most accepted metric used to determine how much it cost DivX to recruit and hire these 74 employees was to calculate the organizations cost-per-hire. Thus, in researching what data and costs are included in an organizations cost-per-hire analysis, the Society of Human Resource Management was contacted. The information SHRM supplied was part of, a 2002 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 of candidates, lodging, sign on bonus awards and relocation allowances. The total DivX spent on the above activities was provided by J$ in YTD spreadsheet. While the costs analyzed are YTD (through 10/31), I did not include the four employees hired between 1/01 and 3/01 in my headcount analysis but the costs are included.
- $160,691 – This figure excludes the five retained search agreements since the local HR team did not actively source and recruit for these positions. Once you factor in the additional five heads due to the retained search agreements, the headcount goes from 69 to 74 for a total cost of $328,839
- $160,691 divided by 69 = $2,328 per hire
- $328,839 divided by 74 = $4,443 per hire
- SHRM’s 2002 Published Study indicates that the average cost-per-hire for small companies is:
- $9,044 per hire for Exempt employees (regional and national sourcing)
- $3,640 per hire for Non-Exempt employees (local sourcing methods)
- 2003 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 $10,000+.
- $10,852 per hire (or roughly 20%+ greater than the exempt figure published by SHRM in 2002. Unfortunately, SHRM does not break this data down by industry).
The total dollars saved by the DivX HR team:
- 69 Employees compared to SHRM’s exempt figure = $463,345
- 74 Employees compared to SHRM’s exempt figure = $366,761
- 74 Employees compared to AeA’s San Diego high tech study = $446,648
How and Why was the DivX cost-per-hire figure so much less than either the SHRM or AeA figure?
The # 1 Reason: Limited overhead costs associated with having additional headcount on HR team.
- Extremely limited use of agencies and retained search firms.
- Pre-planning with candidate travel taking advantage of cheap flights.
- Excellent process flow and organizational efficiency in an attempt to reduce unnecessary costs associated with candidates traveling to San Diego on multiple occasions.
- The securing of a cost effective method for conducting background checks in a timely manner.
- Continuous focus on how to save the company money in the recruiting and hiring process.
Cost per hire
- Each month published statistics of the work that went into hiring each new hire with the month of September being a record month statistically speaking:
- 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.
The # 1 Deliverable: Recruit & hire 74 employee’s to meet a year end budgeted headcount goal of 138. Achieved 11/29/04.
Obviously, the # 1 HR Objective was met in 2004; however, how does our cost-per-hire compare to other companies and/or a particular industry?
Society of HR Management – 2002 Study published a report on what precise costs are associated with determining a cost-per-hire ratio and what the averages were for U.S. corporations. Their Conclusions:
- National CPH for Exempt Hire: $9,044
- National CPH for Non-Exempt: $3,640
A 2003 SD AeA study indicated member organizations had a CPH: $10,852
According to J$, the costs incurred with recruiting & hiring 74 people in 2004 was * $160,691 (* excluding retained searches), $328,839 w/ retained searches
Mike Russell is a seasoned professional with three decades of experience in the fields of HR and OD. In addition to having a career trajectory of HR Generalist to a VP within ten years, Mike also has a long and successful background as a Consultant/Business Partner to CEO’s, Presidents and Executive Directors in both the private and non-profit communities across a wide spectrum of industries.
As the sole-proprietor and owner of Organizational Development Solutions (ODS), Mike partners with business leaders committed to insulating their organization(s) from potential liability, increasing organizational effectiveness and adding shareholder value.