“Well, I think it’s expensive. Because if we do it ourselves, then it doesn’t cost anything.”

I’ve heard that phrase so many times even from experienced Directors or CEOs when we have discussed the direct search (headhunting) prices. What scares me the most is that a person who thinks like that is allowed to serve as the CEO of some company.

If the company handles the recruitment by themselves, then every person will understand that it is virtually impossible to avoid costs. But how then to calculate the ROI (Return on Investment) for recruitment? In this article, we will outline four aspects that we think should be at least addressed.

Costs before signing the employment contract

These are generally considered to be, for example, the media costs incurred in a recruitment campaign. If external assistance is used for recruitment, they will also go directly under this section. With international recruitments, travel costs can also play a significant role when one or more people are flown to the destination country and city, to conduct interviews.

Or this was the case before the pandemic hit and will be the case when everything gets back to normal. International recruitments tend to be that important that quite often the decision makers want to meet the final candidates in person. Obviously that is not the only purpose for a visit and while they are in the location, they can make some other important visits.

Time spent on recruitment

How many people and how many working hours have been put into one recruitment? Once it is known, it is relatively easy to calculate the amount of money spent on recruitment. It is especially important to pay attention to this point when the main task of the person or persons is not to conduct recruitments, but they have to handle them alongside other types of responsibilities.

That is when a company does not have a dedicated HR department, and someone else is covering these functions. If resources are used efficiently, then no one should have extra time to dedicate to recruitments and when they do it’s automatically off from something else.

Usually, when companies start to calculate all of this, they quickly realize that recruiting new people is not quite that cheap and definitely not free.

The success of a new employee in a position

When I talk to client companies, some are well aware of how long it generally takes for a new employee to become productive in their company and in some specific position.

In general, in the case of salespeople, this is very easy to calculate and it can often be said that the new salesperson achieves the so-called break-even point at month 6th to 12th and the payback somewhere around months 9th to 15th. So after that, the new salesperson actually just starts to be profitable for the company. For this reason, many companies should be able to keep the new hires in at least for two years.

Employee retention in the company

Keeping the good employees in the company is the key to success and the foundation for any business growth.

If a newly hired employee leaves the company after a few months, it may not have a very positive effect on the return on investment. Costs of so called wrong recruitments / bad hires. The average cost of a bad hire is up to 30% of the employee’s first-year salary + costs.

Example: Company X hires a new Salesperson who will be earning 6000€ a month. This would mean 72.000€ as gross salary, which would mean the total cost of around 100.000€ for company X when all the costs are included. If this person leaves within the first few months the costs for the company are around 30.000€. Although in my opinion, that is quite a nice and soft estimation because when you add up the time that has been spent on the recruitment process, selection, onboarding, etc., we will get a whole another number. Aaaaand if you add up that the whole process needs to be done again and the company lost maybe 6 months of time or let’s say that was the time several people put into the whole thing, the new hire didn’t achieve a single sale during those few months, and now they need to start from zero, we are in the situation where it’s almost better not to calculate the total costs, which is precisely what most of the companies are doing.

Like I already wrote, it is very often said that a new employee should stay in the company for at least two years for the recruitment to be considered successful. This is especially true when it comes to at least expert-level recruitment, where too much and rapid turnover is very detrimental to business.

Written by,

Teemu Ruuska

CEO

InHunt World

https://www.linkedin.com/in/teemuruuska/

What is InHunt World?

InHunt World is a Global Headhunting Network that connects the best local headhunting companies around the world. Our mission is to help companies expand to international markets successfully by finding their new key employees. Recruitments abroad can be a headache and a big obstacle when expanding operations to other countries. With us InHunt World, we will make that problem go away, and you can be sure that finding new team members in the new country will not be an issue.

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