Learn How to Overcome the Cost Per Hire Obstacle

By Mark Wilkinson

Business equals people. This means that in the face of tough market conditions and ongoing challenges, the ability to attract the best talent in the recruitment market is key to competing with the best in the UK.

But how do you maximise this strategy whilst'keeping costs low'at the same time? To achieve this, it's imperative to understand the real costs of recruitment as these often become misplaced when engaging in the'recruitment process.

Concern about costs amongst senior HR professionals

Managing costs was identified by senior HR professionals as being their top organisational priority in the 12 months to 2011. (Source: A Barometer of HR Trends and Prospects 2011, Chartered Institute of Personnel and Development)

A big part of this is the cost of recruitment. Not surprising when you consider that the median recruitment cost of filling a vacancy is '7,500 for senior managers/directors and '2,500 for other employees (adjusting for accuracy) (Source: Chartered Institute of Personnel and Development 2011 Resourcing and Talent Planning Report).

Whilst this cost has been found to be decreasing compared with previous years, it is still a high'percentange of overall HR costs. There's no doubt that cost per hire is still a major obstacle to companies seeking to stay ahead in their market. With 50% of organisations now reporting a reduced recruitment budget (Source: Chartered Institute of Personnel and Development 2011 Resourcing and Talent Planning Report), keeping costs low whilst maintaining quality of candidates is an important paradox for companies to address in the coming months and years.

Solving the quality/cost paradox:'an alternative

Some businesses are starting to adopt an approach that does succeed in solving the cost/quality paradox. Two companies, RSM Tenon and Greggs, have achieved a 40% reduction in their cost per hire. The step is to address the misconceptions about the costs of recruitment versus the actual costs.

Addressing the myths:'the perceived costs of recruitment

There are plenty of misconceptions about the costs of'recruiting talent. These persist in the face of the very real challenges that HR professionals are up against today.

In recent research, HR professionals were asked about their future recruitment cost control predictions. Two respondents in three (66.2%) said that their organisation would look to reduce the cost of recruitment within the next 12 months (Source: Xpert HR).

So while many recruiters are keen to cut costs, what are the main misconceptions that persist around the costs of recruiting and retaining talent?

Myth 1:

Getting the talent without the fees: It is understandable that in tougher economic times, recruiters are keen to bring talent on board whilst cutting the costs. Yet finding and retaining talent starts with a strategic recruitment funnel. On the surface of it, this more DIY approach to finding talent seems to make sense. But dig a little deeper and it's easy to see the potential risks of trying to reach the highest calibre of candidate without specialist help, with issues such as staff attrition being a significant cost to business. This is about settling for second best - and potentially achieving second rate results.

Myth 2:

High recruitment fees: High recruitment fees are commonly viewed as a significant factor in high cost per hire. Again, in more challenging economic times this is an understandable misconception. But, again when we compare the overall costs of getting recruitment wrong (i.e. hiring the wrong person, multiple rehires etc) an initial recruitment fee is a small cost. This myth is possibly a popular one because the recruitment fee is an overt part of the recruitment process, unlike the more hidden, but very real issues that increase the cost of hiring.

Myth 3:

Small amount of resource: Another common myth, a small amount of resource is again understandably viewed as a major cost in recruitment. The amount of resource spent recruiting one person can end up equating to several weeks of time once each stage of the recruitment process has been completed.

How do manage your cost per hire whilst bringing the best people on board?

Download our FREE eGuide How to Achieve the Lowest Cost Per Hire

1. Promote from within

There is nothing more soul destroying than going over and above every single day only to see the desk you covet occupied by a total stranger.

Similarly, there is no greater internal branding story than the executive who worked their way up from the bottom.

Never underestimate the importance of a clear path of progression.

Even if it�s a long haul, employees need to know they can fulfil their dreams and ambition within your company, or they�ll look elsewhere.

It�s not all altruistic either.

Research held by the University of Pennsylvania, showed external hires cost 18% more in terms of salary and don�t match the performance of an internal promotion for at least two years.


2. Pay Well

It sounds obvious doesn�t it?

But plenty of companies still don�t truly see the correlation between better pay, improved staff retention and, in the end, a healthier bottom line.

The recession has led many companies to cut costs to the bone.

That�s understandable, but if the staff feel they are being forced to bear the brunt alone while profits increase and executives pocket huge salaries, the winds of discontent can blow swiftly through the company.

With the cost of losing staff so clear, a small concession at review time can actually save your company money.

So pay your staff what they�re worth, or even a little more, if retention is your greatest priority.

Also think about regular reviews and a clear path of progression with money too.

Pay your superstar not only what they�re worth right now, but a reflection of their future value as well.

If employees know that long service is rewarded with a bigger pay packet, they�ll likely stick it out for the long-haul.

If, however, they know that their wages have nothing to do with how long they�ve been at the company, there is no incentive to stay the course.

At the end of the day, you don�t want your best employees going to your competitors simply because they paid more.


3. Benefits

There was a time when every big company seemed to have a subsidised canteen, final salary pension scheme and even an in-house masseuse.

While the perks are still raining down in the US, in austerity hit Britain those days are largely gone.

Benefits, though, make a difference and can be as small as ensuring all holiday left at the end of the year is paid for, or as dramatic as private healthcare or a solid workplace pension scheme.

You could always adopt the Richard Branson model and allow your staff to take as much holiday as they like (!) but we�re pretty certain that in the wrong corporate cultures this could cause anarchy.

Such schemes can truly incentivise your employees to stick with you for the long-term, help to show them their worth to you as an organisation and can often be the difference when it comes to accepting the job in the first place.


4. Outstanding Training

Life isn�t just about money and most of your staff will be looking for personal development and growth.

A proper in-house training scheme will give them long-term goals, as well as the instant gratification of learning new skills.

Training can take many forms, from formal days with outside organisations through to in-house mentoring programmes with the most experienced and specialist hands on deck.

Anthony Hughes, Training Director of Coburg Banks:

�We had the same issues here for several years. We used to recruit people to work for us but didn�t have a structured training plan that was tailored to the individuals� differing levels of abilities. Since we�ve implemented our Training Academy, which incorporates classroom and video based training, we�ve seen staff retention levels go through the roof.

�We had the same issues here for several years. We used to recruit people to work for us but didn�t have a structured training plan that was tailored to the individuals� differing levels of abilities. Since we�ve implemented our Training Academy, which incorporates classroom and video based training, we�ve seen staff retention levels go through the roof.�

Your aim is to train people so well that they do the job to the same level you would.

Simply leaving them to their own devices often means that they won�t succeed to the level you expect, and could result in them leaving your business.

You�ll retain your excellent staff this way, which is the primary objective here.

They�ll feel genuine progression and will learn without the need to work elsewhere.

Management training can also help your generals on the ground deal with their own troops more effectively, too, lifting morale throughout the firm and helping to reduce casualties along the way.


5. Proper Complaints Procedure

A sure-fire way to lose staff is to give them no other option but leave!

Let me explain.

If there is simply no way for an employee to vent their frustration, or address a real problem, they will leave more often than not.

So there has to be a proper complaints procedure, not a token effort, and the employees have to know that every issue raised is dealt with and doesn�t simply go to the shredder.

One of the greatest causes of discontent, and inevitably staff turnover, is a workforce that is divorced from upper management.

Make sure you know that you�re listening to their concerns and acting upon them if you want to increase staff retention.


6. Exit Interviews

It is a Utopian dream that nobody will leave your company.

It happens, indeed it has to happen, so use these occasions to up your game.

When an employee leaves, it might be the best chance you�ll get for an honest set of answers about your company and how it is run.

So take the chance, complete a full and proper exit interview and find out everything you can.

Then learn, adapt and implement your findings so that you don�t make the same mistakes again.

Of course a disgruntled post room worker might use the opportunity to abuse their co-workers, but the majority of exit interviews will contain candid nuggets of gold that you simply won�t get from someone that intends to turn up for work tomorrow.


It sounds obvious that you need your workforce to be as happy as possible to keep them as productive as possible.

More often than not, how you treat your staff will end up being a reflection on how they in turn treat your customers.

Treat them well (in a fair, structured way) and success will follow.

Train your staff so that they have all the tools to succeed in their career and pay them well enough so that they don�t want to join your competition.

Going back to Richard Branson and what he says about looking after your staff:

�Train people well enough so they can leave, treat them well enough so they don�t want to.�

Easy, isn�t it?

For more HR tips, check out our free blog site!