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OPTIMIZING COST-PER-HIRE TO DRIVE QUALITY

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Talent acquisition professionals consistently rank cost-per-hire as one of the most helpful HR metrics. But most struggle to measure and, more importantly, optimize their learnings to achieve efficiency without sacrificing quality.

Learn the cost-per-hire best practices that will enable your talent acquisition team to drive high-performing, engaged hires for your organization.

Key Takeaways:
-How to properly calculate your cost-per-hire
-Understand the cost-per-hire long-game for hiring success
-Consider cost-per-hire as part of the overall discussion on talent acquisition ROI

Published in: Education
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OPTIMIZING COST-PER-HIRE TO DRIVE QUALITY

  1. 1. 0WE BECOME YOU™Content Property of Cielo, Inc. OPTIMIZING COST-PER-HIRE TO DRIVE QUALITY @CieloTalent #talentmindset Learn the cost-per-hire best practices that will enable your talent acquisition team to drive high-performing, engaged hires for your organization.
  2. 2. 1WE BECOME YOU™ Andrew Manning Senior Vice President, Cielo @AndMann • Andrew leads a team of subject matter experts, who design, build and implement all stages of the talent acquisition transformation journey. • Andrew believes in enabling companies to increase business performance by improving the quality of the talent entering their business. TODAY’S PRESENTER
  3. 3. 2WE BECOME YOU™ IN RECRUITING, HOW IMPORTANT IS COST- PER-HIRE? I believe cost per hire is a misguided means to judge recruiting department performance. For one, it rewards the wrong things and ignores quality of candidate and quality of hire. For another, it’s far too tactical and narrowly focused. Worse, improving costs could degrade quality. Lou Adler “ ”
  4. 4. 3WE BECOME YOU™ • Put Cost-Per-Hire in context as part of an overall discussion on value • Examine how the importance of Cost-Per- Hire depends on the talent you need to hire • Highlight the components you should use to calculate Cost-Per-Hire • Demonstrate how a low Cost-Per-Hire can actually be more expensive in the long run • Look at the potential impact on the business of having a high-performing talent acquisition function THIS WEBINAR WILL HELP YOU:
  5. 5. 4WE BECOME YOU™ WHAT IS ROI IN RECRUITING? COST QUALITY AGILITY Agility is the measurement of the speed at which the resourcing function’s strategy and activities are capable of responding to changes in business demands Quality drivers sit across a number of measures e.g. candidate & hiring manager experience, new hire attrition, new hire performance, source of hire, employer brand, NPS, conversion rates True Cost of Hire is a complex calculation including team costs, operational cost of line management, marketing spend, and supplier costs The Perfect Balance? Difficult to achieve, but then, it is not often the target. Business drivers inevitably lead to a weighted model with importance of Cost, Agility & Quality depending on what talent you are hiring
  6. 6. 5WE BECOME YOU™ COST PER HIRE VARIES BY ROLEImportanceofcostperhiredecreases Importance of cost per hire decreases Scarcity Seniority Expert One Skilled Few Talented Many Approach • Investment • Complexity • Time • Resources Delivering quality hires consistently is perceived as the most important strategic function of talent acquisition for all stakeholders (C- Level, Business Unit Leaders and Talent Acquisition Leaders) Cielo’s Talent Acquisition 360 Research “ ”
  7. 7. CALCULATING COST PER HIRE Cost Per Hire = ( )∑(External Costs) + ∑(Internal Costs) Total Number of Hires in a Time Period External Costs Internal Costs • Pre-hire Health Screens • Pre-Screening • RPO fees • Relocation Fees • Sign-on bonuses • Sourcing Costs • Travel & Expenses – Candidate • Travel & Expenses – Recruiter • Technology • Third-Party Agency Fees • Advertising & Marketing • Background & Eligibility Checks • Campus Recruiting • Consulting Services • Contingency to Regular Fees • Drug Testing • Employee Referral Awards / Payments • Immigration Expenses • Job Fairs / Recruiting Events • Cost of Recruiting Staff • Cost of Sourcing Staff • Internal overheads • Non-labor office costs • Recruiting L&D • Secondary Management – Cost of Time for Events • Secondary Management – Cost of Time for Recruiting # of Hires • Total number of hires in a time period • New hires • Backfill due to attrition
  8. 8. 7WE BECOME YOU™ WHAT ARE THE CHARACTERISTICS OF AN OPTIMIZED RECRUITING FUNCTION? Source: Bersin by Deloitte, 2014. New-Hire Turnover TimetoFill(in Days) 18 % 16 % 14 % 12 % 10 % 8% 6% 4% 2% 0% 60 50 40 30 20 10 0 17% 44 55 Level 1 – Reactive Tactical Recruiting Level 4 – Optimized Talent Acquisition Cost-Per-Hire $3,258 10% Mature recruiting organizations spend more by hire But, maturity brings better quality of hire and increased agility Cost-Per-Hire $6,465 What is the potential cost impact?
  9. 9. 8WE BECOME YOU™ WHAT ARE THE CHARACTERISTICS OF AN OPTIMIZED RECRUITING FUNCTION? Source: Bersin by Deloitte, 201 2x 40% 20% Spend per hire equates to: Less new-hire attrition Faster time to fill What is the potential cost impact?
  10. 10. 9WE BECOME YOU™ LET’S TAKE TWO SIMILAR COMPANIES ABC, INC. • $1Bn Turnover • 10,000 employees • 1,000 annual hires • Average compensation = $50k “Optimized” Talent Acquisition Function • Average CPH = $6,465 • Average new hire attrition = 10% • Average Time to Fill – 44 days XYZ, INC. • $1Bn Turnover • 10,000 employees • 1,000 annual hires • Average compensation = $50k “Reactive & Tactical” Recruiting Function • Average CPH = $3,258 • Average new hire attrition = 17% • Average Time to Fill – 55 days …now let’s compare based on cost, quality & agility measures
  11. 11. 10WE BECOME YOU™ ABC, INC. SPENDS 2X MORE ON HIRING THAN XYZ, INC… …what impact does this extra investment have on quality? 1,000 1,000 $6,465 $3,258 $6,465,000 $3,258,000 +$3,207,000 -$3,207,000 Cost Per Hire Number of hires per annum Average Cost Per Hire Total Annual Cost Per Hire Difference – ABC, Inc. vs XYZ, Inc. Average Cost Per Hire figures taken from Bersin by Deloitte
  12. 12. 11WE BECOME YOU™ LET’S LOOK AT THE QUALITATIVE ELEMENT HIGHLIGHTED BY BERSIN First year turnover is a good indicator of quality. Turnover is expensive. The average cost of replacing a departing employee is $48,982 Source: Telegraph.co.uk reporting on 2014 Oxford Economics Study The average cost of turnover for new hires is equivalent to to times the annual pay of the departing employee one 1½ Source: PwC Saratoga …what impact does this have on our example?
  13. 13. 12WE BECOME YOU™ 40% LESS NEW HIRE TURNOVER EQUATES TO $4.4M …what about the impact of Agility as measured by Time to Fill? 1,000 1,000 10% 17% $6,250,000 $10,625,000 -$4,375,000 +$4,375,000 Cost of First-Year Attrition Number of hires per annum First-Year Attrition Rate Total Annual Cost of Y1 Attrition Difference – ABC, Inc. vs XYZ, Inc. First-Year attrition figures taken from Bersin by Deloitte 100 170 $50,000 $50,000 Number of Y1 leavers Average Annual Salary 1.25 1.25Cost of attrition – salary multiplier
  14. 14. 13WE BECOME YOU™ 20% FASTER TIME TO FILL EQUATES TO $2.5M $1Bn $1Bn 10,000 10,000 44 days 55 days $20,000,000 $25,000,000 Total Annual Revenue Number of employees Average Time-to-Fill Lost Gross Opportunity Revenue Average Time-to-Fill figures taken from Bersin by Deloitte $100,000 $100,000 $455 $455 Average annual revenue per employee Average revenue per employee day (220 days) 1,000 1,000Number of annual hires $227 $227 $10,000,000 $12,500,000 Average cost per employee day (220 days) Total salary saved for open roles $50,000 $50,000Average annual salary $10,000,000 $12,500,000 -$2,500,000 +$2,500,000 Lost Net Opportunity Revenue Difference – ABC, Inc. vs XYZ, Inc. Lost Opportunity – Time to Fill
  15. 15. 14WE BECOME YOU™ WHO HAS BETTER QUALITY HIRES? COST QUALITY AGILITY
  16. 16. +$3,207,000 -$3,207,000 -$4,375,000 +$4,375,000 -$2,500,000 +$2,500,000 -$3,668,000 +$3,668,000 Difference in Cost Per Hire Difference – First-Year Attrition Difference – Lost Opportunity/Time to Fill Total Difference – ABC, Inc. vs XYZ, Inc. Despite spending 2x more on its recruiting program, the actual cost to ABC, Inc. is $3.7M less per annum than XYZ, Inc. $3.7M SO, IS IT SMART BY NAME & SMART BY NATURE? The Results
  17. 17. Source: Boston Consulting Group 1 2 3 4 5 6 Delivering on recruiting Onboarding of new hires and retention Managing talent Improving employer branding Performance management and rewards Developing leadership 3.5x 2.0x 2.5x 1.9x 2.2x 2.1x 2.4x 1.8x 2.1x 2.0x 2.1x 1.8x Topic in which most capable and least capable companies were compared The impact that the most capable companies achieve over the least capable companies … revenue growth … profit margin Economic influence is noticeable in all HR topics… but is most pronounced in six: EXCELLING AT RECRUITING LEADS TO POSITIVE BUSINESS OUTCOMES…
  18. 18. 17WE BECOME YOU™ A balanced recruiting strategy is an optimized blend of cost, agility and quality – the balance varies depending on the talent you are hiring If you are going to measure cost per hire, make sure you include all the relevant external and internal components Investing more on recruiting can improve quality of hire, increase agility and consequently be less costly in the long run Excelling at recruiting can have a significant and positive impact on business performance Within HR, recruiting is arguably the function that can provide the best return on your investment KEY TAKEAWAYS 1 2 3 4 5 If you can’t measure it, you can’t manage it “ ”Peter Drucker

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