What does recruiting cost your business?
Posted Monday, May 2nd, 2016
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Many business leaders would agree that the most complicated, difficult and crucial part of a successful business is the talent – searching, identifying, screening, interviewing, qualifying, motivating, retaining, etc.

In spite of having the best idea, the best service, or the best product, a business will never really experience true success without having the right talent. To make the situation just a little more complex, the growth stages of a business dictate that the talent that was a fit at one growth stage may need to be a different talent at another growth stage. Put another way, “What got your business here may not be what you will need to get your business there.”

Most business leaders would also agree that the “cost” of bringing in the wrong talent holds back the company, delays growth, has a negative impacts on the current staff, etc.

Therefore, doesn’t making an investment to acquire the right talent make sense?

If you answered “No”, then you might simply hire someone you know who tells you that they can do the job. This frequently leads to a failed hire. In that case, you are paying for the cost of a failed hire which includes: cost of lost opportunity, cost of the reputation to your business, cost of your employee moral based upon how other employees were negatively impacted, cost of finding a replacement hire, etc. I have seen studies that estimate the total cost of a failed hire to be as much as 15 times the annual salary of the position. For example, a $100K employee could have a total failed hire cost of $100K x 15 = $1.5M. While this may appear to be an exaggerated sum, the total cost of a failed hire is expensive. Bad hiring or a lack of recruiting alone can hold a business back from growth.

The traditional approach for acquiring the right talent is to enlist the services of a professional. Paying for professional recruiting services falls into several “you get what you pay for” categories.

On the low end of “what you pay for” is the staffing model where the industry rate ranges from 13%-25% of the first year cash compensation of the new hire. Worth noting, the fee structure is more of a commission being paid to the recruiter when a candidate is hired.

The basic end (or lowest cost) of the staffing model involves the submission of resumes for the hiring manager to sift through, conduct interviews and then make a hire.

The global executive search firms occupy the top end (highest cost) of recruiting services with a fee structure of approximately 33% of first year cash compensation plus an additional 10% administration fee. For a new hire earning $100K, the executive search firm would be paid approximately $36K. Ideally, the executive search firm implements a process oriented approach and takes a deep dive with the talent in an effort to deliver the right fit.

In between the staffing model at the lower range and the executive search firm model at the higher range, there are hybrid models. As an example, the Boxwood model is a fixed fee / flat fee consultative model with a fee that is between the staffing firm and the global executive search firm.

The actual payment of money is only part of “How much does recruiting cost your business?”

Additional factors include:

– How much additional time and resources need to be invested in the newly hired talent before they are a productive employee? Can your new hire walk in on day 1 of the position and begin work?

– Were there several highly qualified candidates to consider? When a hiring manager is choosing to pick the best candidate from several strong options, the hiring manager is in a position to select the best fit when there are multiple options to consider versus only one finalist candidate.

– Was a proven recruiting process used? There are an unlimited amount of resources available for candidates to rehearse predictable interview questions. “Polished candidates” answer interview questions well but don’t necessarily make good hires. A recruiting process establishes all the necessary steps to be implemented for the successful hiring of the right talent.

– Does your business have a clear understanding of the company culture and have you evaluated the candidate to be a cultural fit? Technical skills are important. Cultural fit is critical. However, determining cultural fit takes time during the hiring process. We have said many times to our clients: “If the process takes a little longer to verify cultural fit and it means the right talent is hired, everyone wins. If you hire the wrong person today, it will take a long time to recover”.

Just like the complexity of the human employee, there is no simple answer to “How much does recruiting cost your business?”

In our experience, the most critical path to insure a successful hire is for the hiring manager to take a direct involvement. No one has more to gain or more to lose than the hiring manager. As the hiring manager, do you understand the resources available? Do you simply need to have resumes fed to you or do you need more? In order to be successful, “Getting it right” means taking the time to understand the costs of hiring as well as the value. Wouldn’t you spend $1 if your business return would be $5?

The total return on your hiring investment must exceed the cost to hire.

It is a competitive marketplace. The first step to get it right is for your business to have a clear definition of the business challenge that a newly hired talent would be brought in to solve.

What are you doing to embrace change, drive continuous business improvement and acquire the talent who can deliver value?

About Boxwood Strategies

Bert Sadtler is the President of Boxwood Strategies and is a thought-leader for best practices recruiting, performance-based compensation and the shift in the changing paradigm toward acquiring critical senior level talent.

Boxwood Strategies is a management, consulting and recruiting firm located in the National Capital region. As   a dedicated, consulting resource to CEO’s and hiring managers, Boxwood develops   strategies for organizational growth through a focus on performance, as well as the evaluation and acquisition of critical talent.

To help companies meet numerous business challenges, Bert has co-founded the Alliance of Independent Managers, a group of diverse and accomplished senior-level professionals who are available to companies on a consultative and project basis. The focus of this group is to take “AIM” at a company’s challenges and opportunities, clearly defining it’s challenges, and deliver cost-effective solutions by using experienced, professional consultants instead of hiring full time employees. Market     sectors include: SATCOM, Space, Government Contracting, Communications and Technology.

Bert can be reached at: BertSadtler@BoxwoodSearch.com and at BoxwoodSearch.com