These are the slides from a webinar I delivered in conjunction with LinkedIn Talent Solutions in October 2015. The slides draw on research from the likes of Bersin by Deloitte, BCG and SHRM and demonstrate how to achieve return on investment in recruiting you need to balance cost, agility and quality drivers. The slides demonstrate how too much focus on lowering cost per hire can actually prove more expensive and disruptive in the long run.

1. In Recruiting,
How Important Is
Cost Per Hire?
October 7, 2015

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Housekeeping notes:

6. David Green
Vice President
About David Green:
David is a Director / Vice-President at Cielo, and works with international
organizations to design talent acquisition programs that drive growth and
competitive advantage. David advises businesses on effective ways to
leverage data and develop strategies that produce the best business
outcome while also aligning with talent strategies and business priorities.
He also blogs, speaks and chairs conferences within the talent and
people analytics space.
About Cielo:
Cielo is the world’s leading pure-play provider of global Recruitment
Process Outsourcing (RPO) solutions. Cielo leverages its global reach,
local talent acquisition expertise and customised solutions to help clients
achieve a sustained advantage and outstanding business outcomes
through their talent practices.
uk.linkedin.com/in/davidrgreen
linkedin.com/company/cielo-talent
cielotalent.com

7. 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 for too tactical and narrowly focused.
Worse, improving costs could degrade quality.
Lou Adler

8. ① Put Cost Per Hire (CPH) in context as part of an overall discussion on ROI
② Examine how the importance of CPH depends on the talent you need to hire
③ Highlight the components you should use to calculate CPH
④ Demonstrate how a low CPH can actually be more expensive in the long run
⑤ Look at the potential impact on the business
Agenda

9. What is ROI in recruiting?
Quality
Cost
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
True Cost of Hire is a
complex calculation
including team costs,
operational cost of line
management, marketing
spend, and supplier costs
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
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 dependent on what talent you
are hiring

10. Cost per hire varies by role
10
Importance of cost per hire decreases
Importanceofcostperhiredecreases
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, Talent Acquisition 360 Research

11. Calculating cost per hire
Cost Per Hire =
( )∑(External Costs) + ∑(Internal Costs)
Total Number of Hires in a Time Period
① External Costs
• 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
• 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
② Internal Costs
• 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
③ # Hires
Total number of hires in a time
period
• New hires
• Backfill due to
attrition

12. What are the characteristics of an optimized recruiting function?
12
New-HireTurnover
TimetoFill(inDays)
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
60
50
40
30
20
10
0
17%
10%
44
55
Cost per Hire
$3,258
Cost per Hire
$6,465
Level 1 – Reactive Tactical
Recruiting
Level 4 – Optimized Talent
Acquisition
Mature recruiting organizations spend more by hire But, maturity brings better quality of hire and increased agility
What is the potential cost impact?
Source: Bersin by Deloitte, 2014.
• 2x Spend per hire, equates to:
• 40% Less New-Hire Attrition
• 20% Faster Time to Fill

13. Let’s take a look at 2 similar companies
Example

14. Meet Smart Inc. and Dumb Inc.
14
Smart Inc.
“Optimized” Talent Acquisition function
o Average CPH = $6,465
o Average new hire attrition = 10%
o Average Time to Fill – 44 days
“Reactive and Tactical” recruiting function
o Average CPH = $3,258
o Average new hire attrition = 17%
o Average Time to Fill – 55 days
…now let’s compare based on cost, quality & agility measures
SMART
 $1Bn Turnover
 10,000 employees
 1,000 annual hires
 Avg compensation = $50k
DUMB
 $1Bn Turnover
 10,000 employees
 1,000 annual hires
 Avg compensation = $50k
DUMB

15. Who has the higher cost per hire?
Quality
Agility
Cost

16. Smart Inc. spends 2x more on hiring than Dumb Inc…
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 – Smart Inc. vs Dummy Inc.
NB: Average Cost Per Hire figures taken from Bersin by Deloitte
SMART DUMBWhat impact does this
extra investment have on quality?

17. Who has better quality hires?
Cost Agility
Quality

18. Low quality hires can significantly impact the business
First year turnover is a good
indicator of quality of hire…
Source: Telegraph.co.uk reporting on 2014 Oxford Economics Study Source: PwC Saratoga
Avg cost of replacing
a departing
employee is
$48,982
Avg cost of turnover for
new hires is
1 to 1.5x
the annual pay of the
departing employee
What impact does this have on our example?
… turnover is expensive

19. 40% less new hire turnover equates to $4.4M
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 – Smart Inc. vs Dummy Inc.
NB: 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
SMART DUMB
What is the impact of agility
as measured by time to fill?

20. Who has better quality hires?
Cost
Quality
Agility

21. 20% faster time to fill equates to $2.5M
SMART DUMB
$1Bn $1Bn
10,000 10,000
44 days 55 days
$20,000,000 $25,000,000
Lost Opportunity – Time to Fill)
Total Annual Revenue
Number of employees
Average Time-to-Fill
Lost Gross Opportunity Revenue
NB: 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 – Smart Inc. vs Dummy Inc.

22. So, is it smart by name & smart by nature?
22
Cost
Quality
Agility
+$3,207,000 -$3,207,000
-$4,375,000 +$4,375,000
-$2,500,000 +$2,500,000
-$3,668,000 +$3,668,000
The Results
Difference in Cost Per Hire
Difference – First-Year Attrition
Difference – Lost Opportunity/Time to Fill
Total Difference – Smart Inc. vs Dummy Inc.
SMART DUMB
Despite spending 2x more on its recruiting
program, the actual cost to Smart, Inc. is
$3.7M less per annum than Dumb, Inc.
$3.7M

23. Excelling at recruiting leads
to positive business outcomes…
23
Other Topics: Mastering HR Process; Global people management and international expansion; Enhancing employee engagement; Providing shared services and outsourcing HR; Managing diversity and inclusion;
Managing change and cultural transformation; Actively using web 2.0 for HR and managing associated risks; Strategic workforce planning; Delivering critical learning programs; Managing corporate social
responsibility; Transforming HR into a strategic partner; Health and security management; Managing flexibility and labor costs; Restructuring the organization; Managing work-life balance; Managing an aging
workforce 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
Economic Influence is Discernible in all HR Topics but is Most Pronounced in Six…
Revenue growth Profit margin
The impact that the
most capable
companies achieve over
the least capable
companies
Topic in which most
capable and least
capable companies
were compared

24. ① A balanced recruiting strategy is an optimized blend of Cost, Agility and Quality – the
balance varies depending on the talent you are hiring
② If you are going to measure cost per hire, make sure you include all the relevant
external and internal components
③ Investing more on recruiting can improve quality of hire, increase agility and
consequently be less costly in the long run
④ Excelling at recruiting can have a significant and positive impact on business
performance
⑤ Within HR, recruiting is arguably the function that can provide the best return on your
investment
Key take-aways

25. If you can’t measure it, you can’t manage it.
Peter Drucker

26. David Green
Vice President
uk.linkedin.com/in/davidrgreen
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