“The time to repair the roof is when the sun is shining.”
– John F. Kennedy
With the markets headed south and uncertainty headed north, we are talking to a lot of companies that are putting hiring on hold. It’s easy to focus on your hiring process when you can’t find people fast enough to support your growth, but not thinking about the process and infrastructure during a downturn can be both a lost opportunity and a negative influence on the oh-so-dear bottom line.
With a traditional internal recruiting function, the majority of costs are fixed—recruiter salaries, benefits and overhead, and annual or multi-year contracts with applicant tracking systems, job boards, resume databases and other tools. You can always let your recruiters go, but then you’re starting from scratch when you have hiring needs again. During a drop in your expected hiring volume, your recruiting costs on a per-hire basis can increase geometrically.
Let’s say you built an internal infrastructure to support 20 hires at an average compensation of $80,000 per hire. The average internal recruiting department is going to spend about 13% of the compensation hired according to Staffing.org’s most recent data. This means your budget would be around $200,000, or $10,000 per hire. If you were to reduce your hiring expectations to 5 hires, you would need to trim $150,000—75%—of your recruiting budget to maintain your cost per hire. Realistically, you are locked into enough fixed costs that you’d be lucky to reduce it by 25% to 50% without having to completely rebuild the department when things pick back up. This means your per hire cost would be $20,000 to $30,000—a 200% to 300% increase over your current spend.
Many smaller firms will turn to contingency recruiters to meet all of their hiring needs. You only pay if a hire is made, and the headhunters will drop their rates to 15% of compensation. Seems logical, right? We are entering a period where the supply of quality candidates will outstrip demand. The emphasis will shift away from sourcing passive candidates and toward filtering through the mass of emails and resumes. Why would you pay 15% of compensation for a headhunter to filter resumes? It may seem like the path of least resistance, but you are building corporate habits that put the most expensive source of candidates at the center of your hiring efforts. This is going to be a hard habit to break when the economy rebounds and placement rates jump back up.
The advantage of any outsourcing model—whether it’s recruiting, HR, IT support or development—is the ability to scale both up and down with your need. We’ve been through this cycle before—there were a lot of unemployed recruiters in 2001-2003 (and many ended up in real estate sales and mortgage brokerages). I know that recruiting may not be on your list of priorities, but you may want to give it a second thought.