Recruiting Great Candidates Comes with a High Price Tag
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 need to come 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 benchmarking 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 for any business with open positions, 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…
The Way It’s Always Been…
On January 2, 1996, I had an epiphany! While scraping ice off the 2x4 purlins before nailing down roofing metal for the poultry house I was helping build, I realized that I didn’t want to make a living as a carpenter for the rest of my life. Truth be told, I didn’t really want to do it for the rest of that day but I liked eating food and sleeping inside so I pushed through. A week or so later, I was one of about a thousand folks to apply for forty full time positions with a local manufacturing company, an employer that hadn’t hired full time employees straight off the street in close to a decade. After nearly two months of competency testing and interviews, I was one of the forty to accept an offer and on March 12, 1996, I started what I thought would be the job that got me through college.
Before I go on, I want to stress that I’m forever grateful for the carpentry experience I had prior to accepting that position; it’s something that serves me well to this day. My desire for change on 1/2/96 was largely driven by trying to drive nails through multiple sheets of metal with a hand I had broken on New Year’s Eve - but that’s a story for another time… The points I’d like to call your attention to are that I was one of ONE THOUSAND people to apply for those 40 open positions and that this job I thought would get me through college lasted nearly 19 years (which was still less than the time I needed to finish a degree). I don’t share that “one out of one thousand” stat to boast but to make a point that recruiting was significantly different in those days, and it still carried some hefty costs.
During the almost two decades I was with that organization, I held several different roles and was blessed to gain some incredibly valuable experience, including the last 18 months where I hired over 225 candidates that I mentioned before. To say I saw some pretty drastic changes over the years just might qualify as one of the biggest understatements in history. Not only did the organizational culture change significantly, I can assure you there was no time during that year and a half where I was tasked with all that hiring where I saw anything that resembled the interest in working for that organization that existed in 1996. Don’t get me wrong, I definitely reviewed well over a thousand applications and I probably interviewed close to a thousand people, but at that point it took that many to find 225 who had anything close to relevant skills, could pass a drug screen, and had a clean enough background check that we didn’t need armed guards.
I share all that with you for one reason… Through varying economic conditions, the approach to recruiting candidates changed very little but produced wildly different results!
One of the constants I saw was that the recruiting process itself, as well as the time required to bring new employees up to speed, ended up being quite the profitability killer. In the decade since, I’ve only seen the impact recruiting has on profitability grow. Regardless of how many open positions an organization has, there’s rarely a time where too many outstanding candidates are waiting in line to fill a spot. Another constant has been that the responsibility for filling these open positions generally lands squarely in the lap of someone (usually wearing some sort of HR hat) who does not have the final say in what the overall organization culture will be. This often results in huge advertising budgets with hopes of making the open positions visible to anyone with a pulse and offering massive sign-on bonuses to the folks who have anything close to the skills necessary in those roles.
We’ve all heard some variation of the idea that if we do what we’ve always done, we’ll get what we’ve always got… It was Eric Hoffer who said “In times of change learners inherit the earth; while the learned find themselves beautifully equipped to deal with a world that no longer exists.” I believe this is just as applicable to the recruiting process, especially if we want to capture even a portion of that lost profitability, as it is to any other aspect of our world today! And I believe doing that will require us to break away from the traditional recruiting approach and build a strong leadership presence into how we attract great people to our teams!
We can certainly stick with the way it’s always been in our recruiting approach if we want, but I’ve only seen that kill more and more profitability over time. With such a drastic increase in minimum wage in a relatively short time, the “skilled trades shortage” that’s been brewing since at least the late 80s when even middle school kids began facing the stigma of failing in life unless they got some sort of liberal arts degree, and the host of other factors that have added to the difficulty of attracting candidates since the Covid net was cast across the globe, I’d suggest we consider breaking tradition and taking an entirely different approach to recruiting the best people in our respective industries to be part of OUR teams…
An Investopedia article called The Cost of Hiring a New Employee shared this:
“Hiring a new employee costs more than just their salary. Benefits and other compensation like equity should be considered, as well as the considerable time investment employers make when they hire someone. It depends on the nature and investment of the new hire, but it can be six months or more before the employer sees a positive return on their investment in the employee in the form of full productivity.”
If we’ve taken action on giving our best folks a reason to stay, we’re at least on the right track to addressing the profitability killer that exists in recruiting costs, but there’s still so much more we can do! A few years ago in our Leading At The Next Level program, I shared a lesson called The Importance of Employee Retention, which was clearly focused primarily on being able to hang onto great team members, that wrapped up by detailing the importance of being proactive and responsive from the beginning of the recruiting process on. The premise of that was based on the idea that our actions ALWAYS speak louder than our words. We can have the fanciest ads, the most catchy slogans, and offer the highest sign-on bonuses or wages in our industry but if we’re not willing to be responsive to the good candidates who actually do show interest, our talk about all the great things our company offers will soon fall on deaf ears.
Here’s where you may be thinking I’m taking a shot at the folks wearing the HR/recruiting hat - and I kinda am… But don’t mistake a lack of responsiveness being the norm there for believing that they’re who sets the tone for poor response times being acceptable in the organizational culture! While that’s often the primary point of contact a candidate experiences, this is nearly always just a symptom of a bigger issue; think back to the profitability killer we looked at in Leaders Set the Tone…
As we move forward with addressing how the cost of recruiting kills profitability, we’ll take a hard look at how great leadership can improve the process then we’ll work through specific steps leaders can take to make sure everyone involved in the recruiting process gets better results and great people (eventually) starting knocking at the door to be part of our teams! Stay tuned…