High-volume recruiters face constant pressure to reduce cost-per-hire, but it’s no easy trick. Especially when you’re besieged by low-quality applications, rampant re-appliers, inconsiderate drop-outs and spiralling volume targets.
Complicated doesn’t mean impossible though.
Let’s unpick the problem. Then we’ll share seven practical methods to start decreasing your cost-per-hire.
Why reducing cost-per-hire is mission-critical for volume recruitment
SHRM’s 2017 Talent Acquisition Benchmarking Report finds that 15% of all HR-related expenses are recruitment costs. That’s a pretty decent chunk of the budget – little wonder recruitment teams from here to Timbuktu are focussed on reducing cost-per-hire.
Digging into the figures, the same report finds the average cost-per-hire was $4425 in 2016 – an increase from $4,129 in 2015. You might be looking at slightly less at volume thanks to economies of scale, or higher depending on talent scarcity in your industry, but let’s take the average.
That means you’re looking at costs of some $45,000 for every 100 hires. Which wouldn’t itself be a huge problem, if every hire stayed in the business adding value.
But in high-volume recruitment, you might lose half within the first few months (Contact B ) nearly a third of call centres have turnover between 26% and 50%. Another 7% have turnover over 50%. Not good.)
It takes a long while for hires to justify their recruitment costs if you’re haemorrhaging people. That’s a business growth problem.
The fact is, reducing cost-per-hire is mission-critical. If you keep costs down while still meeting volume targets, you free up cash to spend maximising value elsewhere in HR. Or elsewhere in the business, like on innovation.
Which means reducing cost-per-hire isn’t just a recruitment priority. It’s the mother of all metrics because it ties back to business growth.
But making those reductions is getting more difficult. Cost-per-hire is increasing, average time-to-fill is still high (although down to 36 days in 2016 from 42 in 2015, SHRM says) and application volume is a continual battle.
Here’re the weapons you need to come out on top.
Cost-per-hire under the microscope
Before we can talk about reducing cost-per-hire, we need to pin down exactly which costs we’re talking about.
Cost-per-hire measures all the costs associated with hiring, both internal and external. Add those together, then divide by your total number of hires and you have your cost-per-hire.
Internal costs are things like…
- Referral program costs
- Orientation and onboarding costs
- Office costs
- Recruitment team salaries and benefits
- Hiring manager/interviewers time
External costs are things like…
- Marketing costs (job board fees, website, social media, etc.)
- Advertising costs (PPC, print, radio, out-of-home, paid social, etc.)
- Events and fairs costs
- Recruitment agency costs
- Background and visa check costs
- Tech costs (like LinkedIn licenses, ATS, video interviewing software, etc.)
- Travel costs and expenses (for your recruitment team and candidates)
You can see it’s an extensive list – cost-per-hire can quickly add up.
So let’s talk about ways to cut costs, while still meeting your quantity – and quality – requirements.
Seven practical ways to reduce cost-per-hire
1 - Conduct a cost audit
The very first step in reducing cost-per-hire. The list above should spark some ideas, but it’s crucial to conduct a recruitment cost audit for your own business. Where’s the money going?
It’s a simple question, but finding the answer is often convoluted and time-consuming. Some costs are simple and fixed – like your ATS, or LinkedIn licenses, or job boards. But others – like the costs associated with hiring time – can be a nightmare.
Say your hiring manager earns £60,000 a year, for example, with an assumed productivity worth three times salary (£180,000). Every day that hiring manager spends outlining roles, reviewing CVs, interviewing, giving feedback, making offers and onboarding new hires costs the business £805.36.
(There are 261 working days in 2019. Take away the average UK holiday allowance of 33.5 days and the UK average 4 sick days , and you get an average of 223.5 working days. Divide £180,000 by 223.5, and you get £805.36).
Running a cost audit means digging into details like that, so you can understand where your biggest cost-savings are.
Maybe you could sit down with hiring managers and talk about ways to reduce their involvement from ten days to eight, for instance. Maybe you introduce a standardised feedback form or video interviewing software that makes feedback quick and straightforward.
In the cost-per-hire game, micro-changes add up to macro-gains.
2 – Review your suppliers
This is like changing your household electricity supplier. It’s an easy win but often overlooked because they seem like small gains. And anyway, small gains mightn’t be worth switching over.
But it’s still good practice to conduct a supplier review regularly. Especially for bigger businesses, who often find they’ve stopped using a particular tool because they’ve bought another tool that covers the same bases – but they’re still paying for it.
Small wins, remember.
3 – Plan ahead
Better planning means lower costs, almost always. If you’re hit with sudden demand, you’re under increased pressure, and often you’ll have to turn to agencies – a big expense.
If you plan ahead, you can pull cheaper resources from other areas in your own business to meet your anticipated needs. That’s particularly true for volume recruiters because you’ll typically have higher volume periods or seasonal surges you can plan around.
4 – Build your network
Candidate sourcing can represent a large chunk of your recruitment costs, even in the high-volume arena where you’re getting loads of applications. On the other hand, candidates from your own network are much cheaper – basically free – to source.
Time is often at a premium for high-volume recruiters, but it’s worth carving out time to build your network. That’ll help keep your sourcing costs down – but it’ll also make future hiring easier, which will bring time-to-fill down and the associated time-related recruitment costs.
5 – Balance your quality/quantity application ratio
If you’re recruiting at volume, one of the most time-consuming and costly things is sorting through scores of applications. Often scores of low-quality applications.
You might only interview one candidate for every 100 applications – or worse. That’s an unbalanced ratio, and it costs you time and money.
Instead, you want to increase application quality while, ideally, decreasing quantity. Which – of course – is easier said than done. But it is doable.
For example, invest in boosting your employer brand – so you attract better fit candidates, and discourage poor-fit candidates. Likewise, write job descriptions that rule out the wrong candidates as well as invite the right candidates in.
Think, a ‘who you are’ as well as ‘who you’re not’ type section. There’ll still always be those infuriating candidates who apply despite meeting none of the requirements. But give yourself a fighting chance by making it abundantly clear you’ll rule them out.
You can set ‘killer questions’ that automatically rule out candidates. Work eligibility is obvious, but you could niche down – ‘Do you have 5+ GCSEs’, ‘Have you ever worked in sales’ – for example. But think carefully about your must-haves versus your nice-to-haves.
6 – Use the right tools and technology
Recruitment technology is often a deceptively big cost in the cost-per-hire equation. Ultimately though, the right tech can save huge amounts of time and money.
Think about the areas where you spend the most time on manual tasks and workarounds. Things like… data entry. Background checking. Telephone interviewing. Interview scheduling. CV sorting.
That’s where recruitment tech can usually add the most value. Especially in volume recruitment, where time fast adds up.
7 – Decrease drop-out rate
If you do nothing else, do this. Because every candidate drop-out means you’ve spent money for nothing. Especially if they’re late in the process. Which means $4000 cost-per-hire becomes $8000 becomes $12,000 before you know it, for each successful hire.
The speed of your recruitment process is a big issue. If you’re too slow, candidates are likely to have accepted another job offer before you make your move.
Your candidate experience is another related issue. If your candidates get the hump with you, they’re more likely to turn elsewhere. And less likely to let you know, which can increase costs more – assessment days that need last-minute rearranging, for example.
The same applies to post-start drop-outs. That’s usually about your onboarding. If you treat new hires like quotas and ignore them the second they sign, they mightn’t even turn up on their first day. And if you don’t make them feel confident, prepared and welcome, they might not come back.
Early turnover is an expensive issue. The more you increase retention, the less you need to hire – especially to backfill urgent, unexpected (expensive!) openings.
All about the incremental gains
Reducing cost-per-hire while maintaining quality and quantity is the Holy Grail. Especially in volume recruitment where poor quality applications, drop-outs and high turnover are ongoing battles.
Although there’s no magic fix-all solution that’ll slash your cost-per-hire, the little-and-often approach works wonders here. Don’t overlook incremental gains – they add up to big improvements over time.