Advice for Employers and Recruiters

Why cost per hire is a hiring manager and not a recruitment marketing metric

Steven Rothberg AvatarSteven Rothberg
May 5, 2023

“If you can’t measure it, you can’t manage it.” It is a great line and typically attributed to management consultant and author Peter Drucker even though he didn’t say it.

For as long as there has been recruitment advertising, there has been a need to properly measure and manage it. Employers should measure whether they’re spending their recruitment advertising dollars wisely and then use that information to inform their future buying decisions. For example, if they’re advertising their jobs on four different job boards, it is likely that at least two or three of them are generating a much better return on investment than the others. If so, the employer should stop using the one or two that aren’t producing a good return on investment and then shift those dollars to the two or three which are.

A fair question, however, is what metrics to use to determine if the return on investment (ROI) is positive. The ratio has two elements: (1) return and (2) investment. When a company spends money on opening a new facility or buying a new piece of equipment, it is fair to measure the ROI on the profit generated (the return) divided by the money spent to open the facility or buy the equipment (investment).

When it comes to measuring the ROI of a recruitment function, it is tempting to many to look at the cost-per-hire as the ultimate goal of any recruiting function is to successfully hire the candidates needed by the employer. I believe, however, that when it comes to recruitment advertising, it is almost never appropriate to use the cost-per-hire to measure the success of the recruiter or the job boards or other recruitment tools used by that recruiter. Why? Because the success of employees should always be measured by what is largely within their control and never by what is largely outside of their control.

We all surely agree that the hiring process is a crucial aspect of any organization’s success. As the company grows and evolves, the need for talented and skilled professionals becomes even more important. However, the roles and responsibilities of different stakeholders in the hiring process are often misunderstood. In particular, the distinctions between hiring managers and recruiters, as well as the purpose of job boards and other recruitment tools, can be unclear. Before we get further, let’s be sure that we are on the same page regarding what we mean by each of these stakeholders:

Hiring Managers: These are the individuals who are responsible for making the final decision on who and how many candidates to hire. They determine the required qualifications, experience, and skills for a particular job opening, and work closely with recruiters to find suitable candidates.

Recruiters: These professionals work with hiring managers to source, screen, and recommend potential candidates for job openings. Their role is to identify and attract qualified applicants, but they do not make the final decision on who to hire.

Job Boards: These platforms are used by both recruiters and job seekers to post and find job openings. They serve as a marketplace for job opportunities and are an important tool for recruiters to source candidates, but they do not influence the hiring decision itself.

Other Recruitment Tools: These can include applicant tracking systems, pre-employment assessments, and other technologies that help recruiters and hiring managers manage the hiring process more effectively.

    But let’s get back to cost-per-hire. To be clear, I believe that it is a valuable metric for evaluating the efficiency and effectiveness of the hiring process. It is calculated by dividing the total costs associated with hiring by the number of new hires made during a specific period. The costs can include advertising fees, recruiter fees, interview expenses, and other related expenses.

    While it is tempting to attribute the cost per hire to recruiters, job boards, or other recruitment tools, it is essential to understand that the ultimate responsibility for this metric lies with the hiring manager. Since they are the ones who make the final decision on who and how many candidates to hire, they directly impact the cost per hire. Indeed, they more than anyone or anything else impact the cost per hire because it is the hiring manager who decides whether to hire, how many to hire, and who to hire.

    It isn’t unusual for a hiring manager to decide to hire one or more people and for a recruiter to then assist in that effort by writing up or at least editing a job description, advertising the role on several job boards, using some sourcing tools, networking, screening applicants, interviewing and otherwise assessing those applicants, ranking them, and presenting a slate of finalists to the hiring manager. If the hiring manager wants to bring on one person, you might see the opportunity put in front of hundreds of candidates to generate dozens of applications to generate a slate of several finalists.

    The finalists in a process like this are typically going to be qualified and often will be highly qualified. But that doesn’t mean that they’re the only ones who are qualified and perhaps not even the only ones who are highly qualified. It is quite possible that five, 10, or even more of the applicants are highly qualified but only several are presented to the hiring manager as they’re the best of the best. In a not uncommon scenario like that, it would be a mistake for the employer to say that the recruiter or the recruitment tool did not do a good job (generate a good return) simply because the highly qualified candidates that they generated were not amongst the best of the best.

    Once the slate of finalists is presented to the hiring manager, it isn’t unusual for the hiring manager to decide not to hire anyone, or to decide to hire a non-finalist such as their niece or nephew. When that happens, the recruiter did their job and the recruitment tools did their job even though none of the candidates they generated ended up being hired. Again, the decision as to whether to hire, how many to hire, and who to hire rests entirely with the hiring manager and not the recruiter and therefore not the recruitment tools. As a result, measuring the performance of the recruiter or recruitment tool based on whether there was a hire wouldn’t just be unfair but also likely to lead to suboptimal decisions being made that will impact future recruitment efforts.

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