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.

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

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

“

”

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:

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

5WE BECOME YOU™

COST PER HIRE VARIES BY ROLEIm

po

rta

nce o

f co

st p

er

hire

de

cre

ase

s

Importance of cost per hire decreases

Scarc

ity

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

“

”

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

7WE BECOME YOU™

WHAT ARE THE CHARACTERISTICS OF AN

OPTIMIZED RECRUITING FUNCTION?

Source: Bersin by Deloitte, 2014.

Ne

w-H

ire

Tu

rno

ve

r

Tim

e t

o F

ill (i

n

Da

ys

)

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?

8WE BECOME YOU™

WHAT ARE THE CHARACTERISTICS OF AN

OPTIMIZED RECRUITING FUNCTION?

Source: Bersin by Deloitte, 2014.

2x

40%

20%

Spend per hire equates to:

Less new-hire attrition

Faster time to fill

What is the potential cost impact?

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

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

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

$48,982Source: 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

one1½

Source: PwC Saratoga

…what impact does this have on our example?

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

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

14WE BECOME YOU™

WHO HAS BETTER QUALITY HIRES?

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

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

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 comparedThe 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…

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