Identifying Recruiting’s value
(and convincing the boss)
Let’s face it; recruiting is one of the last places in which the typical executive management team “wants” to invest. Recruiting is frequently viewed as a necessary evil or a means to an end; rarely as a key function which impacts a company’s success or failure. Even when management does acknowledge recruiting’s importance, they often still aren’t prepared to increase recruitment spend. The thought is that since recruiting isn’t impacting the top line, it’s simply not a top priority. This is where many organizations “zig” when they should “zag”.
Recruiting must be able to effectively articulate the true financial value behind any solution they chose in order to get executive attention AND the budget. To do so, you must be able to calculate “cost per hire” (CPH), which is often done so as a function of direct spend (e.g. agency fees, other outside, or contract vendors, job boards, internal recruiters, etc.). Note, the common denominator; they are all direct costs. That’s only part of the equation, however. What about indirect, or opportunity costs? e.g. Finding sales performers more quickly, or having the hiring managers spend half as much time in the recruitment process. While these indirect/opportunity costs are not as easily quantified, if companies don’t consider such “costs” as the driver of selecting/justifying any recruiting solution, they’d be guilty of what I call “business operations myopia”.
It’s feasible that once you consider the operational impact outside of recruiting (say engineering, R&D, sales, etc.), not only may your true CPH be much higher than you thought, your company may actually benefit from increasing recruiting spend because of top line efficiency gains, for example.
Take the following simplified example (from a real company):
- Company needs to add twenty sales professionals
- Each carries a quota of $2m per year; say close to $40k per week
Solution 1
- Average time to hire is eleven weeks
- Average CPH (using the direct cost model) is about $3,500
- Hiring managers look at 20 resumes and have five interviews before one is hired
- Average an eight-hour investment in time to hire one sales person – burdened salary of $50 per hour
- Each hour not managing sales implies lost productivity to the tune of $1000 per hour
- i.e. hiring manager CPH is $8,400 per hire
Now let’s compare this to a “Managed Recruiting Solution” of $40,000 per month for three months (for professional services fees) to put in place a team of twenty sales pros, with the only difference being the following:
Solution 2
- Average time to hire drops to nine weeks (from 11)
- Hiring managers only look at six resumes and interview three to result in a hire
- Average a 4-hour investment per hire (compared to the previous eight hours)
- i.e. hiring manger CPH of $4,200
Summary is below:
| Solution 1 | Solution 2 | |
| Direct CPH | $3,500 | $6,000 ($120,000/20) |
| Hiring Manager CPH add-on | $8,400 | $4,200 |
| True total CPH | $11,900 | $10,200 |
| Total (out of pocket) Project (cost) | $238,000 ($11,900 *20) | $204,000 |
| Net positive impact on sales revenue | $1,600,000 (2 weeks * 20 sales pros * $40,000 sales quota) |
It would have been easy to discard Solution 2, based on the typical “Direct CPH” model ($3,500 vs. $6,000), but digging a little deeper shows Solution 2 to be a better option ($238k vs. $204k). Now, also consider the effective sales team productivity gain of Solution 2 by having two extra weeks of production; $1.6m (2*20*40,000). If I’m the VP of Sales, I’m inclined to pay for that increase, happily. You just increased my year-end bonus!
A word of caution… make sure you have sufficient evidence and/or data to justify your assumptions. After all, you are introducing a better, albeit new way to look at the bigger picture.
It’s time to graduate the perception of recruiting to the next level. Good luck!
Nick Tubach, Founder, President and CEO
