Friday, January 07, 2005

When to use cost per hire

There are many voices saying cost per hire is a poor target, most of them saying quality per hire is a more important aim (there are issues with this, especially in the accurate valuation of something which is often partially subjective)

Well, cost of hire does have a place, but that place is unlikely to be found in the overall aggregate.

Aggregate cost per hire figures are poor indicators or success and focusing on them is likely to have detrimental effect. Cheap hiring is often slow, without a customer focus.*

Another reason cost per hire is usually wrong is that calculations are often poor. Too often the cost of a recruiters' time is ignored (or aggregated over the whole year). What you need to do is define a 'cost per hour' of each recruiter and assign this. Probably your largest cost stops becoming invisible.

Where cost per hire is more valuable is tracking at the micro level, especially at describing the costs of sourcing applicants.

Start coming closer to the real cost of each source and 'cheap' sources suddenly stop being cheap. Proactive sourcing (using web searches etc.) is time intensive. You want to assign a true cost to each channel.

When you do this you can start measuring the true cost of using each channel and therefore determine the most effective ones. Get some great data and you can split it a multiple of ways.

Measuring cost per hire is like measuring GDP - it will get revised over time. Say you run a national ad for a role and the ad costs USD 10,000. You hire from this and your cost per hire takes the full USD 10,000 into its calculations

Two months later one of your colleagues takes on a role, does a resume search and finds someone that applied to the earlier role. They were wrong initially, but for this new role are spot-on. The hire is made.

The USD 10,000 charge is now split over two roles and that ad becomes better value.

Whilst you might not be interested in knowing how much Bill in purchasing cost to acquire, you are interested in knowing costs of each sourcing channel. You really need to be thinking of each marketing thing you do and determining how to track this spend. You need to understand how marketing for one role impacts the costs of another.

Looking at cost per hire this way is useful as it enables you to make decisions that will influence the efficiencies of the marketing mix of future roles. Aggregate information won't help you run a better department, it will only tell you what you have done and history is something few of us can change.

* Of course, if you were being really smart you could look at the cost of not having someone in the role for the period of the search, and then the slow hire becomes very expensive, very quickly.