Recruiting Great Candidates Comes with a High Price TagMay 02, 2023
Having just wrapped up our look at how high turnover kills so much of an organization’s profitability, it just makes sense to shift our focus to the costs of recruiting. If we are indeed able to provide our best team members with a solid reason to stay, the pressure to add anyone with a pulse to the team should be nearly non-existent but any time we have to fill a key role, attracting great candidates comes with a high price tag! As we take aim at this profitability killer, we’ll comes to terms with what the total costs are (because most organizations don’t capture nearly all of them), how having a strong leadership culture improves the entire process, then we’ll tie it all together with some steps any leader can take to begin developing a strong pipeline of future team members.
To set the stage, let’s get some perspective for what those costs really look like… An article from the Society for Human Resource Management in April ‘22 called The Real Costs of Recruitment cited recent bench-marking data from the organization as showing that “the average cost per hire was nearly $4,700.” The author went on to state that “many employers estimate the total cost to hire a new employee can be three to four times the position's salary.” In referencing Edie Goldberg, founder of the Menlo Park, Calif.-based talent management and development company E.L. Goldberg & Associates and co-author of The Inside Gig, the article shared "Of those costs, I would say 30 percent to 40 percent are hard costs, and the other 60 percent are soft costs." The hard costs tend to be those that show up as line items in a budget or on an expense report; advertising fees, placement testing, drug screen & background check fees, etc. The soft costs - the ones I’ve seen very few companies even consider as part of the total cost of recruiting - were defined in the article as including “the time departmental leaders and managers invest in supporting the HR-specific roles of the hiring process.”
In late 2019, I sat in on a public policy meeting at our local Chamber of Commerce with several business owners from industries throughout the area. The conversation landed on concerns about the workforce, which was right up my alley because I was about halfway through a four-year term on our regional workforce development board’s executive committee and I was very familiar with the issues they were concerned about. At that point, unemployment in our area was at a historically low 2.6%. Every business represented in that room had open positions, many of which offered substantial wages and benefits. Fast-forward to present day (spring of ‘23) where we’re on the tail-end of a global pandemic, experiencing record inflation, and seeing signs of a market downturn, I can think of very few companies in our area that aren’t still hiring - and the wages have gone up significantly since that meeting in October 2019. The one constant I can point to, be that from early 2013 through late 2014 when I hired more than 225 employees for just one company, at 2.6% unemployment in late 2019, or right now, has been a need for great people with solid skill sets.
In a 2016 article shared on Linked by Mark Lufkin called How Recruiting Can Help Improve Profitability, which grabbed my attention right away by making some comparisons between the movie Moneyball and recruiting in the business world, Lufkin suggests that “When hiring is done correctly, a company can get the right person for a role with all the required skills and a perfect cultural fit and not have to pay the highest salary.” I agree 100% but just like Billy Beane/Brad Pitt preached in the movie, the traditional approach isn’t always going to yield the results we need. Before we can hope to capture the profit we’re losing with an improved process, I believe it would serve us well to have a baseline for what we should avoid so that’s where we’ll pick up next time…