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1 Hiring Measurement that’s Plain Stupid: The Illogic of “Cost-Per-Hire”

 


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Hiring and HR managers and recruiters sometimes brag about how cheaply they hire employees. In fact, the national HR association, SHRM, even collects cost-per-hire data. What a waste!

Cost-per-hire is stupid, illogical and does not measure financial benefit or loss from employees you hire.

Reason: What counts most in hiring is your return-on-investment (ROI) or cost-benefit ratio when you hire an employee.

1ST EXAMPLE of STUPID COST-PER HIRE – for HIRING SALES REPS

Let’s say
- your cost-per-hire to hire one Sales Rep is $5,000
- that Sales Rep’s productivity results in sales of $1-Million/year for your company

But, let’s say you hire a second Sales Rep
+ with cost-per-hire
of $10,000 - that cost twice as much as the first Sales Rep

+ and this ‘more expensive’ Sales Rep produces sales of $2-Million/year

Glorious financial result:
You spent $5,000 more cost-per-hire, and you made a lot more sales. You
produced a vastly bigger ROI.

Question: Was that extra $5,000 more than worth it?

Every executive I ever worked with or consulted to would
feel that $5,000 extra cost-per-hire is 100% fine, because it is financially
beneficial. You produced a vastly bigger ROI.

2ND EXAMPLE of STUPID COST-PER-HIRE – for “BLUE-COLLAR” EMPLOYEE

Let’s say you hire people for “blue-collar” jobs, perhaps in manufacturing or distribution.

Some managers and recruiters brag about their $2,000 cost-per-hire for “blue-collar” employees.

Imagine if you spend $2,000 to hire a “blue-collar” employee. And that employee
is a troublemaker who causes detrimental financial detrimental results, such as
- accidents
- low productivity
- stealing
- mistakes and waste
- substance abuse on-the-job
- lousy work ethic
- disruptive to co-workers or customers

Sum = That employee you hired for $2,000 cost-per-hire created expensive problems.

Now, imagine you hire a different “blue-collar” employee at a $4,000 cost-per-hire.
That cost two times as much as the troublemaker you hired for $2,000. But, if this $4,000 employee is highly productive, low-turnover, and a pleasure for everyone to work with, you hired a financial winner.

Question: Wasn’t that worth the more expensive cost-per-hire?
It certainly proved financially worth it.

OTHER EXAMPLES of STUPID COST-PER-HIRE

You can imagine many examples where a cheap cost-per-hire
ends up costing your company a lot more than a more expensive
cost-per-hire.

So, the next time a manager or recruiter brags about cheap
cost-per-hire, look that person in the eye, and ask this question:
“How much did that employee increase or decrease our financial ROI?”

If the manager or recruiter cannot answer your ROI question,
then you should explain ROI or cost-benefit analysis. Teach them the
difference between cost-per-hire and profit-improvement.

If they still fail to realize their job requires hiring employees
who improve your company’s bottom line, you may consider “de-employing”
that them.

Then, you can hire a new manager recruiter who knows their
goal is to hire employees who help you improve profits and productivity.

SUMMARY – HIRE THE BEST to GROW YOUR BUSINESS

Only employ people who help you grow your business.

The ROI of highly productive employees is worth almost any cost-per-hire.

COPYRIGHT 2012 MICHAEL MERCER, PH. D.

(766)

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