By Michael Mercer, Ph.D.
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
- 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
[Note: I omit financial signs, because some e-mail programs block them. But, you know what these
numbers mean.]
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.
