Executive Search
Cost Per Hire (CPH)
Search Professionals claim they can do it…
--faster, better and cheaper...
What's the real scoop?
There are, of course, many things that enter into a employers Cost Per Hire (CPH). Employers in Carmel can expect a higher acceptance rate than employers in Oklahoma City. The top employers in an industry can expect a broader and more receptive talent pool than a less recognizable Company.
The reality is that most employers have no idea how much it costs to hire an employee, but the overwhelming majority probably think it's far lower than it really is. Talent acquisition, aside from being the foundation bedrock for enlightened employers, is also one of their most expensive necessities.
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COST FACTORS
Employment/Recruiting Office Expenses
- Salaries and benefits of employment/recruiting office staff.
- Travel, lodging, entertainment expenses of recruiting staff. All recruiting-related trips and entertainment, T/L/E expenses for professional development seminars, workshops and conferences, college relations and source development visits, etc.
- Administrative expenses - Overhead expenses, including but not limited to telephone, office space, postage, PR literature, resume books, job posting systems, give-aways, general/image building advertising, training program and conference attendance fees, employee gift awards, computer access charges, etc.
Other Recruiter's Expenses
- Travel, lodging, entertainment expenses for other recruiters and employer staff (technical managers, operating staff, etc.).
- Fees of other recruiters. Salary computation of other employees used in the process.
Candidate Visit Expenses
- Candidate travel, lodging, meal expenses.
- Interview workday expenses. Average hourly equivalent salary of the company personnel involved in interview process.
- Other expenses. Including, but not limited to, testing, pre-employment drug screening, credential verification, relocation packets, etc.
Direct Fees
- Advertising fees
- Job fairs
- Agency fees
- Executive search fees
- Employee referral cash awards
- College recruiting
- Relocation expenses
Supplemental Data (For determining program effectiveness)
- Average annual salary of new hires
- Recruiter workload
- Screening ratio - interviews to hires
- Acceptance rate
- Time-to-fill
- Time-to-start
- Source utilization
Certainly a good many of these cost categories also occur when using a recruiter; nevertheless, many hiring managers, after working with AMERICAN INCITE have found that our fees have more than offset the costs incurred without our services; plus, they’ve been persuaded that the odds of hiring a better caliber person are greater when the task is in the hands of a seasoned and focused professional.
COST COMPARISON
How does AMERICAN INCITE'S recruiting service compete cost-wise with the internal recruiting efforts of your company? Use the preceding information and the following method to demonstrate just how expensive the hiring process can be using traditional methods of hiring against that of a search firm like AMERICAN INCITE?
Computing the real figures can be daunting and it’s rarely possible to factor in all of the essential cost components; but, you can develop your own data using the factors outlined above coupled with the illustration we’ve provided below. Although do-it-yourself recruiting is a common strategy it doesn't take much analysis to realize that it’s probably not as good a deal as some might think.
The format which follows is a conceptual analysis prepared many years ago, for use with your staff regarding the real cost involved in running an ad type recruiting campaign. This format may convince those reluctant hiring authorities who are inclined to do it themselves, to give the assignment to AMERICAN INCITE before running an ad. The method can also be modified to include the above-mentioned factors as well as the impact of newly evolving technology or other considerations that are unique to your organization.
COST PER HIRE -- By the Numbers
What Is A Managers Time Worth?
Statistics show in general that an employee's time - ones personal net worth in production - is worth five times their annual compensation to their company.
A few examples:
Annual Income Your Personal Net Worth
$ 40,000 $ 200,000 or $ 96.00 per hour
$ 50,000 $ 250,000 or $ 120.00 per hour
$ 60,000 $ 300,000 or $ 144.00 per hour
$ 70,000 $ 350,000 or $ 168.00 per hour
$ 80,000 $ 400,000 or $ 192.00 per hour
$ 90,000 $ 450,000 or $ 216.00 per hour
$ 100,000 $ 500,000 or $ 240.00 per hour
Dividing each net worth figure by 2080 derived the hourly rates [40 hours per week x 52 weeks = 2080 hours per year].
Let us assume for the moment that your managers’ annual compensation is $60,000 per year. That person’s personal net worth to your organization is $300,000 or $144.00 per hour.
He needs a manger and decides that instead of using an executive recruiter, he is going to save that huge fee and "do it himself". The salary for this new manager will be $ 40,000 per year.
Take some average time-consuming chores to see how much money is saved.
- Compose, correct, amend the ad............................................................20 minutes
- Receive 200 resumes.
- Qualify 200 resumes @ an average of 10 minutes each.....................2000 minutes
- Delete 100 resumes.
- Re-screen 100 resumes @ an average of 10 minutes each...............1000 minutes
- Delete 70 resumes.
- Re-qualify 30 resumes @ an average of 20 minutes each................600 minutes
- Deleted 15 resumes.
- Reference check 15 resumes @ an average of 30 minutes each.........450 minutes
- Delete 10 resumes.
- Now -- she/he has invested 4,070 minutes or 67.8 hours.
They haven't interviewed one person as yet, but they have invested 67.8 hours of the companies’ time. Multiply 67.8 hours times their net worth of $ 144.00 and you come up with $ 9,763.00. He has spent $9,763.00 plus the cost of the ad and come up with 5 people that may fit the required profile.
To Continue:
You now invite all 5 individuals in for personal interviews:
- 5 interviews @ 2 hours each equals 10 hours.
- Delete 3 individuals.
- 2 more interviews @ 4 hours each equals 8 hours.
To the $ 9,763 already invested, we add another $ 2,592.00 (18 hours times
$ 144.00) for a grand total of $ 12,355.00 plus the cost of the ad.
Other Cost Factors to consider: When possible we recruit in the geographic area where you want the individual, saving you on interviewing and relocation expenses; we provide insight to the reference checking process, often verify earnings, tenure and other pertinent data; a search is kept highly to protect the integrity of the candidates being considered; and if an offer is extended there is a higher likelihood of acceptance by the candidates we recommend at the salary you want to pay; in the location you want.
This doesn’t include all of the opportunity cost of lost business either.
You know the two remaining individuals are qualified but, will either one accept the job, if offered, in the location you want?
This hiring authority within your firm has invested 85.8 hours -- 10 working days, 5 hours and 48 minutes to come up with two individuals out of 200 resumes - who may or may not accept the position, if offered.
Conversely, our normal fee to companies, at 30%, on an individual who will receive a salary of $ 40,000 is $ 12,000 -- an outright saving of $355.00 plus the cost of your ad. Moreover, the entire process moves much quicker!
Isn't the time spent by your managers better utilized on what they are trained for and what they do best – working on the organization's projects, where their expertise and experience are really needed, rather than on trying to recruit on their own?
Call American Incite™ ...see how we can help you get more of the right talent aligned to the right tasks, the right teams.