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.
- Take the annual sales of your company (or division) and divide it by the number of employees. This is the annual revenue per employee.
- Divide that number by 250 to get the daily revenue per employee.
- Multiply daily revenue per employee by the number of days it takes to hire an employee.
- 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.
