Cost per Hire....the 20 year debate continues...

Since I got into the industry in 1991, the debate has raged on as to what consistutes Cost per Hire.

I know this was a key element of the emergence of the Applicant Tracking Sysems (ATS) back in the 90's. Industry pioneers, such as Hank Stringer (Hire.com) and Derek Mercer (RecruitMax) worked dilligently to get some sort of an industry standard metrix as to CPH, so they could justify or at least 'sell' the reduction feature of CPH as it related to their ATS software.

And no one could agree....today we are still debating the CPH metric, and it will continue for some time, I can assure you.

Here is one crazy metric that I know two Fortune 500 firms utilize.

And, it scares the heck out of their corporate recruiters. Again, this may sound Crazy, but they use it.... and its effective.

Management takes the total revenue of the company, divides it by the total number of employees, then divide that by work days in a year. (250) Then take the 'Time to Fill' metric, i.e. 25 work days or whatever it is, and multiply it out. Sounds crazy, but it really gets the recruiters attention.

For example, one company I know has a gross revenue of $400,000 for each employee on staff, in this example, 1000 employees equals a gross revenue for the company of $400Million.

They divide the $400,000 by number of workdays (250) and come up with a 'lost revenue' of $1600.00 per day for everyday a req is open..then multiply the $1600 x's number of days the position is open. It may not be entirely accurate, but they want recruiters to know exactly how much it means to limit the days it takes to fill a position. So, if it takes 25 workdays to fill a position, ($1600 x's 25) they call that cost per hire $40,000. Sounds crazy, but its one way to create an innovative metric that is consistent. I dont recommend it, but it obviously makes a huge statement to the recruiters etc....

Other cost per hire metrics are exact costs of the department, i.e. salaries, benefits, etc...plus job board costs and other departmental overhead, all divided by number of hires made in a given month. This does not calculate lost revenue, but gives a true dollar figure as it relates to the department.

Interesting differences of metrics and business opinions.

The bottom line is, establish your metric, apply it to all personnel, and stick to it. Any type of measurement is better than No type of measurement....and a metric that fits your company best is always the best metric.

A good combination of lost revenue, plus expenses, seems to make the most sense. But does an open 'sales position' warrant more attention than an open 'admin position' as it leads to more lost revenue? Probably....but it all works out in the end.

CPH....is whatever you want it to be, as long as you remain consistent with your metrics.