How Much Does it Really Cost to Hire - or not to Hire?

In a recent article in 'The Interbiznet Bugler', it is stated that the Saratoga Institute, often seen as the ultimate source of HR thinking, typically describes "cost per hire" as the sum of administrative costs and expenses, and Infomart-USA, a hiring practices auditing company, estimates the national average at about $4,400. They consider the elements of cost per hire to be the following:

• Advertising
• Agency fees
• Employment fairs
• Employment office salary expense
• Employment office facility expense
• Estimate of time spent in training
• Recruiter travel expense
• Internal recruiter expense
• Internal recruiter labor expense
• Referral Bonus
• Recruiting & Training expense
• Uniforms

The means used to calculate the administrative cost per hire is deeply understated. So what is the real cost per hire - or more importantly, per not hiring?

Opportunity Costs

The cost of a hire is the money lost because the hire wasn't made. Well recognized in MBA programs and broadly understood throughout the rest of the organization, the simple concept is "opportunity costs."

At its most basic, the opportunity cost associated with a particular hire is the productive revenue lost because the hire wasn't made. Here's an easy way to get your arms around the real cost per hire in your organization.

1. Take the annual sales of your company (or division) and divide it by the number of employees. This is the annual revenue per employee.
2. Divide that number by 250 to get the daily revenue per employee.
3. Multiply daily revenue per employee by the number of days it takes to hire an employee.
4. If you want, add the dollars spent by the Recruiting Department (it's a minor fraction).

This is the real cost per hire. Generally it's 5 to 10 times the administrative costs.

Using an outside recruiter to fast-track hiring of sales talent is good business as it costs far less than not hiring and is an investment in your organization’s growth. When economic times are challenging, sales-focused employees are the resource best leveraged to protect market share—in a shrinking market, taking share away from your competitors is priority one, superseding cost containment measures. Fielding sales talent is an initial success that lays the groundwork for achieving growth objectives. Tapping into a network of industry sales professionals puts growth-minded managers on the offensive.

Should Sales Run the Company?

This question keeps coming up, so I’m going to answer it. Let’s start with the basics:

The only reason a for-profit business exists is to make profitable sales.

Read that last sentence three times, because there’s an entire MBA’s worth of business wisdom in it. If you believe that statement is true, then the follow must also be true:

In a for-profit business, every job has a single purpose — to help profitable sales take place.

Therefore, the value of EVERY activity inside EVERY for-profit business can be assessed by two criteria:

1. Does it generate qualified leads, resulting in more sales, thereby increasing revenue?
2. Does it reduce the cost of sales or cost of goods, thereby making the average sale more profitable?

Considering all of the above, the four major “non-sales” functions can therefore be defined as follows:

Marketing — Every marketing activity should either attract new customers (generate qualified leads) or make it easier for sales to close business (reduce the cost of sales.) For example, a direct mail campaign is wasted money unless it attracts new customers, thereby potentially increasing revenue. Similarly, a “branding” exercise is stupid and pointless unless it creates credibility that makes it easier for sales to close business, thereby reducing the cost of sales.

Development — Every activity that’s funded should be to design new products and services that existing and future customers want, thereby making it easier to attract new customers, thereby increasing the revenue stream. New ideas that results in products and services that can’t be sold or that nobody wants to buy is wasted effort.

Operations — Every activity should be focused on delivering high quality products and services that attract new customers, while reducing costs. While those costs aren’t traditionally counted as a “cost of sales”, they are really the same thing, because both cost of sales and cost of goods are only meaningful concepts if a sale actually takes place.

Management — Despite all the blah-blah-blah about “leadership,” in the end a CEO’s only important jobs are to 1) sell the company to the public as a spokesperson, and 2) make sure that every other department in the company serves the needs of the Sales group. And don’t try to tell me that the CEO has an important job representing the company to investors. What investors want are more revenue and more profit.

Does this mean that the Sales group should be performing all these functions? The answer is no. Not because they couldn’t do it, but because it’s a waste of selling talent. People who can sell — really sell — have got no business pushing pencils in the back office.

Instead, the Sales group should be telling these other groups what they must do, at least in a general sense, in order to ensure that profitable sales continue to happen. More importantly, all activity in all those groups must be measured and compensated based upon whether those profitable sales eventually take place.

So let’s restate the question:
Q: Should the Sales function drive the entire company?
A: Absolutely.

Excerpted from an article by By Geoffrey James

Don't be Slow, be Strategic in Hiring Talent

Why is it taking longer than ever to find, and land, revenue-generating professionals with the skills and talents to drive results? In a recent hiring survey, more than two-thirds of the respondents said they expect their companies to be bringing on new revenue-generating staff additions within the next 12 months, and 88% said their employers were experiencing a skills shortage.

The demand is there, but where are the candidates? Only 9% of revenue-generating workers polled said that they’re actively looking for a job, and 63% reported feeling secure or very secure in their current position.

Even when candidates are available, a lack of preparation by hiring managers or a disconnect between business drivers and internal processes can compromise company performance.

For any industry which is currently facing talent shortages in revenue-generating positions, the pertinent question remains: does the time-to-hire make a difference to the quality of talent being inducted into an organization?

Recruitment experts agree that the hiring time is critical for finding the right candidate. The reason is obvious. Often because of undue time lags between identification of candidates and making the selection, a good candidate may lose interest in that specific role and take up another opportunity.

SPEED (or the lack thereof) is a strategic factor in the competition for talent. When talent acquisition is an organizational strength, you start by overwhelming candidates with responsiveness.

Here are the spots in the recruiting process where the need to manage speed is critical:

1. Solicit candidates only when you have the time to and interest in screening them. For prospects that fit your general position requirements, set the initial step within 48-hours of submission.

2. Organize process steps to fast-track internal bottlenecks. Once the initial screen is completed and you decide to move the candidate to the next stage—momentum is on your side! Plot steps to the final interview and schedule these all at once, within 24-hours of the initial step.

Example: if the initial step is a telephone screen, and the final step is an interview with the senior manager; but in-between there is an interview with 1) the hiring manager, 2) a peer, and 3) a next-level manager—book set times for all of the 3 “middle steps” in this example, within 2-days of each other. You can always cancel if the candidate proves to be less than anticipated, but you cannot regain lost time between steps tying to schedule “on the fly” as the process unfolds.

3. Manage expectations as you move to the offer stage. Give timely and honest feedback to, or about, candidates following each step. Ideally, you want to do a blitz round of interviews and get to the final stage shortly thereafter. If there is any holdup in the process, you have to sell the candidate on the company and the fact that you still love them as the right fit for the job in question.

4. Anticipate administrative and/or organizational requirements to get to the offer stage. Don’t wait until after the final interview to initiate administrivia like reference checks, pre-employment screenings, approval forms, offer letter/new hire paperwork turnaround, etc. At the same time you schedule the final interview, start the organizational wheels turning to ensure a minimal lag time before you can make a firm offer.

Interested candidates are a perishable resource – start the process too soon or have a delay after a phone interview or a face-to-face meeting, and you have problems. Candidates start having confidence issues in you as an employer of choice, and even if you eventually hire them, the delays can cost you negotiation leverage as you go through the offer stage.

Learn how to juggle the timing needs of the company and the candidate in the hiring process, and you'll get better talent than you deserve.