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
- 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
- low productivity
- 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
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”
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.