Dr John Sullivan Talent Management Thought Leadership
You wouldn’t want the cheapest recruiting any more than you’d want discount brain surgery. Because recruiting produces the highest ROI of any HR function. It’s an area you should invest in, rather than one where you randomly cut costs. And because this CPH metric is so effective at encouraging cost-cutting, it is often damaging. CPH may qualify as the most damaging of all recruiting metrics!
You May Have To Spend Money To Make Money
When trying to hire a candidate as impactful as Shohei Ohtani, the baseball star, you would hurt your chances of successfully recruiting him if, in order to cut costs, you refused to hire a translator. Or if you put a limit on the amount of money that he could spend on his sushi dinner during his recruiting trip. So, you should never cut any transactional recruiting costs unless you have data revealing the possible consequences of the cut.
The Top 10 Ways That The CPH Metric Hurts Recruiting Results
This listicle has a simple goal. It is in a scannable format to quickly highlight the top 10 ways the cost-per-hire metric has actually hurt a company’s recruiting results. The highest impact CPH problems appear early in the list.
- Because it’s so widely used, this transactional cost metric often results in excessive cuts – it is the second most commonly used recruiting metric. Its widespread use encourages everyone in the recruiting function to focus on reducing hiring costs. However, when superior results are critical, cost-cutting should be a low priority. It’s now clear that lowering the hiring costs of the factors that are included in the CPH metric will seldom have any measurable positive impact on your overall recruiting results.
- It’s currently a cost metric, but it should be converted to a return on investment metric – metrics should focus on results, not process elements. However, in a world where cost-cutting in overhead functions is a common practice, merely having the word “cost” in the metric’s title may now lead many in recruiting to assume that identifying costs to cut is the metric’s sole goal. A more effective and broader metric would look at recruiting costs as an investment. And the resulting “return on recruiting investment” metric would be a ratio that compares the dollar returns from the investment to the costs of the investment. It’s also important to realize that excessive cost-cutting in critical areas like sourcing may actually cost you money. Cheaper sourcing may mean that your revenue-generating jobs will remain open much longer, and those extended openings would cost you a lot of cash.
- After learning that CPH is usually such a minuscule amount, most will worry less about it – I recommend that you begin your analysis of CPH by realizing that the cost per hire, whether it’s high or low, is almost always a minuscule dollar amount in the overall scheme of corporate cost-cutting. This is because the most recent SHRM survey revealed that the average cost-per-hire is only $4,700. And that amount is barely 10% of the top average starting salary of $48,000.
- Unfortunately, even when you work on reducing costs, your CPH doesn’t go down much – in my experience, even when recruiting leaders increase their emphasis on the CPH metric. The amount they actually save is almost always a tiny amount. This is due to the fact that many recruiting costs are fixed by vendors (like job board listing fees) and are non-negotiable in the short term. In direct contrast, the damage caused by excessive cost-cutting will often create substantial damage.
- Lowering hiring costs may result in slower hiring, which will be costly – if you cut costs, for example, by using cheaper but less effective job boards, this will inadvertently cause an increase in the number of days that your positions will remain open. And in revenue-generating positions, increasing position vacancy days will clearly cost you cash. Incidentally, increasing the time it takes to make a hiring decision will also cause you to lose some of your best candidates because they will have already accepted earlier offers.
- Excessive cost-cutting will reduce the quality of your sourcing – if, for example, you spend less on inexperienced human sourcers. You will unintentionally decrease both the quality and quantity of the candidates that you source. And if you are looking for “passive candidates,” “hidden gems,” or “purple squirrel candidates,” you may not find a single one unless you invest a significant amount of money in the more expensive practice of direct sourcing.
- Cost-cutting in recruitment advertising will dramatically hurt your candidate pool – If you try to save money by posting fewer job ads or by placing ads on less expensive job boards, you will dramatically decrease the number of qualified applicants. But it will also take much longer for your ads to generate enough qualified candidates to make an effective hiring decision.
- When your candidates consider you cheap, it will hurt your acceptance rate – be aware that your top candidates are likely to be immediately startled and perhaps even scared away. When they assume that the “cheap recruiting operation” they are experiencing is, unfortunately, a representation of a company culture that overemphasizes being cheap. Avoiding that appearance is important because the very best candidates won’t accept an offer unless they believe that the offering company has ample dollars to invest in their development, ideas, and innovations.
- The CPH transaction formula almost always omits many real costs – if the goal of the CPH metric is to report the actual costs of each recruiting transaction, think again. The CPH formula used by most for calculating the cost per hire, unfortunately, routinely excludes many major cost factors, including the hiring managers’ time, recruiters’ salaries, and the hours employees spend participating in interviews. And in many cases, those excluded costs well exceed the standard reported cost-per-hire.
- If your goal is to hire “passive candidates”, realize that your CPH investment will be much higher – active job seeker candidates are much cheaper to hire because most will find you. And they are also much easier to sell. However, if you have a goal of hiring a large number of the so-called “passive” non-active job seekers, your CPH will have to increase significantly. This is because it takes more time to find and build trust relationships with individuals who are not actively looking for a job.
Final Thoughts
Recruiting should continually look for ways to build a competitive advantage over its talent competitors. So if your goal is to hire the most qualified, high-performing, and in-demand candidates in mission-critical areas like AI and cybersecurity. You’ll need to realize up front that no amount of cost-cutting in any area of recruiting will likely have a positive measurable impact on your hiring results.
So, your only real way to gain a competitive advantage is to prioritize your jobs. So that you now spend the bare minimum amount on your lower-priority jobs. And then you will “break the bank” when you are recruiting for your high-priority jobs that have the greatest business impacts!
A secondary goal for the CPH metric should be to avoid cutting costs blindly. So instead, use data to reallocate your spending so that it is now completely focused on funding only the most effective recruiting channels.
Thanks for finding the time to read and share this article.
Notes for the reader
This is the latest article from Dr. Sullivan, who was called “the Michael Jordan of Hiring” by Fast Company.
You can subscribe to his Aggressive Talent Management newsletter (which focuses on recruiting tools, current recruiting opportunities, and recruiting trends). Either here or by following him on LinkedIn.
