ROI
of Recruiters
By
Bruce Powell
Business
leaders don't think twice about engaging an outside
expert for legal advice or accounting assistance - but
many of these same corporate managers will balk at the
cost of engaging an outside recruiter to help them resolve
their hiring needs.
I
understand. As a client I used to feel the same way
about using headhunters. "They're so expensive,"
I thought. "I can manage the process myself for
much less." Unfortunately, I didn't understand
the true cost of managing my own hiring or the value
that a really good recruitment partner could
actually provide.
Bad
News - only 1/3 of all hires are effective.
It's
not uncommon for businesses to make a bad hire. In most
cases, their batting average is no better than .333,
where only one-third of all hiring decisions are deemed
successful; one-third are minimally effective; and one-third
are outright failures. And the cost of all these mis-hires
goes far beyond the cost of their salary. Unfortunately,
when you add up the numbers, the cost of mis-hiring
is often a company's biggest and most poorly managed
expense. And in no other area of business would management
accept such mediocre performance on a regular basis.
The
cheap person pays twice.
What
happens if you hire the wrong person for the job? And
what happens when it takes a long time for you to fill
an empty seat? Unfortunately, the poorly staffed and
under-resourced companies usually end up over-burdening
their existing staff - which in turn leads to increased
frustration and departure levels among their more qualified
employees. It's a vicious cycle.
Excessive
employee turnover will cripple your business, killing
it softly as the hard and soft costs of hiring rarely
get factored into year-end budgets or financial reports.
And other soft costs, such as on-boarding, training
and development, and employee management become excessively
expensive if the processes must be constantly repeated
as a result of poor hiring decisions.
Consider
this:
Worse
still, these numbers don't fully account for the organizational
costs of managing the hiring process. A typical search
for a new mid-management employee (i.e. the screening
100's of unqualified resumes and dozens of wasted interviews)
takes between 150 and 200 people hours (up to 5 weeks!)
to execute. Companies can't afford to re-allocate that
many resources these days. And most of our clients balk
at the added workload of trying to manage this process
themselves!
So
what happens? Sadly, most companies settle for mediocrity
and don't invest the time, energy or money to hire right.
They lack commitment to their hiring process, have undisciplined
hiring criteria, and ultimately make mediocre hires
- which exacerbates the problem and increases employee
turnover. The kicker is that this increased employee
turnover diminishes the firm's reputation and makes
it more difficult to recruit the top performers! Again,
it's a vicious cycle that directly impacts the bottom
line.
"Ok,"
you say, "So it costs me to make poor hires - what's
the real impact?"
Let
me give you an example: One of our clients with 150
employees recently confided they have an annual turnover
rate of over 30 per cent - more than double the industry
average! They knew this was costing them but they didn't
realize how much. Using our estimates above (and these
are conservative - some experts put the cost of replacing
a mid-management employee as high as 10 times their
annual salary!), and an average compensation of $70k,
this turnover costs our client almost $5,000,000 year!
Sure,
many of the costs are intangible and hard to finger
- but whatever your calculation methodology, these problems
cause a very real drain to profitability. In this client's
case, by simply reducing their turnover to only 20 per
cent (still higher than average) they would save over
$2,000,000 annually in lost productivity and turnover
costs. A huge boost to the bottom-line!
So
how do you fix this?
Unfortunately,
there's no refund for the time, money and resources
your company pour into poor personnel decisions. But
there are ways to improve your odds of success.
By
making a commitment to the hiring process, developing
disciplined hiring criteria, engaging in 3rd-party and
objective candidate assessment, and pro-actively refreshing
and recruiting new talent, you will automatically improve
your hiring performance.
And
by leveraging the expertise, commitment, and partnership
of a skilled external recruiter you will radically improve
your results and your bottom-line!
"What?!"
you exclaim, "How can incurring an expense improve my
bottom-line?"
Believe
it or not, working with a good recruiter is
usually the most cost-effective way to hire better.
Good recruiters bring professional process, industry
insight, and an objective perspective to the hiring
table. Process and a wider recruitment net guarantee
you better hiring results. And the counsel they can
offer you about the market and strategies to retain
your existing employees can be invaluable.
Because
they interview thousands of people every year, recruiters
are also skilled specialists when it comes to identifying,
qualifying and assessing top performers. They can tell
you who's good, who's not - and why! And because
they have their fingers on the pulse of the market,
good recruiting partners can often identify the exceptional
talent ahead of your hiring need! (i.e. minimizes corporate
downtime)
More
importantly, recruiters engage in direct contact
head-hunting. They'll work with you to develop a clear
and compelling opportunity profile - and then they'll
work the phones and go after the exceptional "passive
candidates" you really want to hire. Unlike an
internal HR manager who often has other responsibilities
on top of hiring, recruiters actively recruit
people who aren't necessarily looking for a job. And
their external objectivity and career-management counsel
can give them an advantage when approaching a target
candidate.
This
is an absolutely critical step to secure top talent
- and something few companies have the resources or
experience to do themselves. Ultimately it leads to
better hiring.
A
good recruiter will:
But
what about the cost?
At
first blush, recruiters can appear expensive, often
charging a flat-rate or percentage fee between 20 and
30 per cent of a new hire's annual base salary.
But when you compare this to the opportunity, turnover
and additional soft costs of a mis-hire - the value
is much more obvious.
Businesses
worried about recruiter costs usually don't calculate
the intangible cost of hiring poorly. Take for example
our client noted above - over the next year they will
need to hire 45 new employees. If they use a recruiter
for all these hires (average fee of $15k/hire)
the cost to the company would be almost $700,000. At
first glance, this appears to be an astronomical sum.
But if professional recruiting processes generate better
hires, and better hires reduce their churn by 1/3 -
the company will save over $1,000,000 in reduced employee
turnover costs the following year! Aha! - A much better
value proposition.
Of
course there's no guarantee. You need to work with recruiters
who understand the importance of identifying A-level
talent, recruiters who are experts in their fields and
committed to their craft to get the best results. And
even then you will make the occasional mistake - BUT
your odds of a mis-hire are far reduced. And the cumulative
and eroding effect of B-level hires is diminished.
The
bottom line.
Sure,
you could probably do your own accounting, but you still
hire accountants because they ensure everything is done
right and you get the best results. Working
with a trusted recruiting partner does the same thing
to your hiring process.
The
calculations represented here can be manipulated in several
more complicated data models - but the end result
is usually the same. Developing a trusted and ongoing
relationship with a good recruiting partner can save
your company money.
When
it comes to hiring people, better results means smarter,
more engaged, and more productive hires. And better
hires lead to a more profitable business. Isn't that
what it's all about?
| IQ
Insight is published by IQ
PARTNERS Inc.
IQ
PARTNERS helps intelligent companies hire better,
hire less and retain more. Our services include
Executive Search, Qualification & Assessment,
Employee Development & Retention, Career
Management, and Contract HR Services. We specialize
in Marketing, Communications, Media, Technology
and Financial Services, and operate at the mid-to-senior
management level. IQ PARTNERS has offices in
Toronto and Ottawa, and internationally via
the Aravati
Global Search Network.
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