1 Hiring Measurement that’s Plain Stupid: The Illogic of “Cost-Per-Hire”

Aug 30 06:43 2012 Michael Mercer, Ph.D. Print This Article

HR managers and recruiters sometimes brag about how cheaply they hire employees. What counts most in hiring is your return-on-investment or cost-benefit ratio when you hire an employee. 

Hiring and HR managers and recruiters sometimes brag about how cheaply they hire employees. In fact,Guest Posting the national HR association, SHRM, even collects cost-per-hire data. What a waste!

Cost-per-hire is stupid, illogical and 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

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.

COPYRIGHT 2012 MICHAEL MERCER, PH.D.

Source: Free Guest Posting Articles from ArticlesFactory.com

About Article Author

Michael Mercer, Ph.D.
Michael Mercer, Ph.D.

Michael Mercer, Ph.D., authored the book “HIRE THE BEST & AVOID THE REST(tm).”  Dr. Mercer created all 3 “FORECASTER(tm) TESTS.”  These 3 pre-employment tests are used by companies to assess job applicants’ personalities, mental abilities, and dependability.  Dr. Mercer also delivers speeches and seminars at companies and conferences.  You can learn about the 3 FORECASTER(tm) TESTS, or subscribe to his “HIRE THE BEST Newsletter,” at www.Pre-EmploymentTests.com

View More Articles