Cost-per-hire is a loaded topic. It’s an easy target for talent leaders to communicate throughout their businesses. A simple measure that seems to build a business case almost on its own. If you’re recruiting large numbers of people each year and you reduce the cost per hire, you are probably well on your way to achieving your budgeted cost savings. Great, right? Well, not always.
By focusing on this one metric you may not be truly delivering value into your organisation. Achieving too low a cost per hire can have a significant impact on the quality of talent and, in return, the organisation’s ability to achieve its goals. In reality, by focusing on one metric in isolation you may actually increase costs over time.
When considering how to deliver year-on-year cost savings back into your business, it turns out that cost per hire is not talent’s silver bullet metric. It ignores other factors such as performance, productivity, turnover and time-to-fill, which have a huge impact on managing overall talent costs.
Sources ranging from a recent Oxford Economics study to the experts at PwC Saratoga have proven that the average cost of replacing a departing tenured employee is c£32000. For new hires, the average turnover cost is as much as 1.5 times that employee’s annual pay. The cost of a bad hire, a disengaged employee or a departure, quickly eats away at any front-end ‘savings’ from maintaining a low cost-per-hire and actually usually results in a deficit. By focusing too heavily on lowering cost per hire, organisations risk heading into the red. Instead, thoughtful deliberation should uncover how spending more initially per hire can actually reduce new hire attrition and keep hiring organisations in the black.
Just check out the following from Bersin by Deloitte: organisations that spent twice as much per new hire saw 40% less new-hire attrition and 20% faster time-to-fill. This means your organisation is saving the simple cost of turnover and achieving the savings of a calculated cost of vacancy, all for a slightly larger upfront investment.
This data and years of experience led me to recommend that organisations measure cost per hire as just one part of the overall equation for talent acquisition ROI. There is no doubt, if you confer with experts, that in the end spending more per hire saves your organisation a substantial amount over time.
Authored by Seb O’Connell, Cielo’s managing director of Europe & Asia Pacific
Seb O’Connell leads the organisation’s creation and delivery of customised, innovative solutions to clients seeking transformational change. As a member of the Cielo Global Executive Team, he plays a key role in shaping the strategic direction of the organisation as it expands its footprint in Europe and beyond.
Seb brings to Cielo a strong background in business development as well as insightful solution design and operational delivery. Throughout his career, he has proven successful at growing organisations and people, and delivering world-class results for RPO clients across the globe. An acknowledged industry thought leader and EMEA Advisory Board Member to HRO Today Services & Technology Association, Seb is frequently quoted in the media and is a highly-regarded speaker at regional, national and international conferences and seminars.
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