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August 25, 2023

Important Factors Behind In-House vs. Outsourced Recruiting

For or cost, convenience and strategic reasons, employers may decide to do all their recruiting with in-house staff, outsource the function or combine the two tactics. Deciding what to do should be based on the kinds of roles being filled, the company's culture, and significantly, price. But when determining cost savings, beware: The use of […]

For or cost, convenience and strategic reasons, employers may decide to do all their recruiting with in-house staff, outsource the function or combine the two tactics. Deciding what to do should be based on the kinds of roles being filled, the company's culture, and significantly, price.

But when determining cost savings, beware: The use of cost-per-hire (CPH) may be tricky. Here's why determining CPH is challenging and how individual companies can determine which recruiting method—or methods—may work best for them.

Cost-Per-Hire ‘Merely a Guidepost’

The average cost of hiring an employee—$5,000 (or $4,683 to be exact, according to the 2022 SHRM Benchmarking: Talent Access Report)—can be useful, according to Nick Marshall, director of strategic solutions at ManpowerGroup in Milwaukee.

The CPH metric can be used to make strategic decisions, including budgeting and planning, benchmarking, evaluating efficiency, and hiring.

And while there are a few different ways to calculate CPH, the simplest approach is to take your annual talent acquisition budget and divide it by the number of hires made over a year.

But that's not truly reflective of the complex hiring landscape, Marshall said.

"While the average cost-per-hire provides a general benchmark, it's crucial to remember that it is merely a guidepost," he explained. "The actual cost-per-hire is unique to each organization and should be calculated for like roles within an organization. High-functioning talent acquisition teams should regularly track their cost-per-hire and pull the levers at their disposal to lower their cost-per-hire."

Those levers include employer brand, response time to candidates, talent supply and demand, geography, job ad content, and access to talent pools, Marshall said.

However, he also cautioned against averaging CPH across an entire organization.

"It may result in a number that is too simplistic and may not account for the nuances of the different roles you hire for," Marshall said.

For example, according to the SHRM report, the average cost-per-hire soars to $28,329 for executive hires.

"Each role in a company brings its unique set of recruitment demands and associated costs," Marshall explained. "Niche job boards, competitive salaries and a longer hiring timeline may be necessary to secure highly specialized talent."

A better alternative would be to create subteams within a company's talent acquisition organization based on the roles the teams fill.

"You can then create budgets for each subteam and then use the same formula, provided tracking is set up correctly," Marshall said. "You will find that this is how the best recruitment process outsource  providers set up their teams and how they are able to track detailed performance metrics."

Using In-House Staff Along with Outside Recruiting Firms

Anita Martin, SHRM-SCP, vice president of HR for the NFL's Houston Texans, said her recruiting strategy encompasses both internal talent acquisition managers and outside recruiting firms (for professional- and executive-level searches).

The decision to use in-house recruiters or go external is made on a role-by-role basis, considering the level of the role (exempt vs. nonexempt, professional, executive), the candidate pool, the skill set needed in the role, and cost.

"Benefits of using an external recruiting source is the time allocation that frees our internal recruiting to focus on other roles, the services that are part of professional- and executive-level searches (i.e., personality tests, skill tests, background screens), dedicated [subject matter expert] for the search, and a vast candidate pool/network that the internal recruiter may not have access to," Martin said.

However, using internal recruiting staff is cost-effective and culture-enhancing, as her team is better able to gauge if a candidate will be a cultural add because they are intricately familiar with the organization, she said. For times when the internal team needs extra support or specialized skills, staff augmentation services can be a valuable resource, providing flexibility and expertise without long-term commitments.

Martin added that the Texans' internal interview process is conducted through a diversity, equity and inclusion lens to ensure alignment with the organization's goals and objectives to maintain a culture of belonging and inclusion. Outside recruiters are at a disadvantage when it comes to truly knowing whether a candidate would be the best choice.

Another advantage of internal recruiters is they are easily accessible for updates, impromptu meetings and immediate candidate feedback while providing assurance that candidates will be vetted thoroughly and properly to determine personality alignment with managers, peers and all other relevant internal stakeholders, she said.

In-house recruiters also ensure internal teammates are considered and vetted for open positions and given the same consideration as external candidates.

Demand for Hiring Drives Decision to Outsource

Emile Clifford, senior vice president of HR and administration at DAS Health in Pensacola, Fla., said her company bases the in-house vs. outsourced hiring services decision on volume and price.

"The job market was highly volatile during the pandemic," she said. DAS Health in late 2021 and early 2022 had no fewer than 10 job openings at a time—with a peak of 15 to 17.

"Then we needed help, and it made perfect sense financially to rely on outsourced providers [such as Florida-based Griffin Resources]," Clifford said.

"We had them on retainer, but once things settled, we shifted to paying them an hourly rate," she noted. "And just recently, we brought the work in-house as we have only about three or so openings. This saved us about 50 percent on recruiting costs."

DAS Health calculates its hiring costs using base salary, benefits and local taxes.

"When the job market was in flux, you had to pay more just to keep up," Clifford said. "We're often in acquisition mode, so our hiring and HR functions for that are cyclical."

Hiring is currently in an upcycle for Robert L. Guy, SHRM-SCP, chief people officer at Darnel, a packaging manufacturer in Monroe, N.C.

"As a result of the tremendous turnover in all industry sectors, using external recruiters has become a necessity for us," he said.

"Even though our company previously and currently uses traditional staffing agencies such as to hire full-time employees, the need to source additional agencies and use less traditional methods of recruiting has become common. At this point, the recruiters and level of hiring needs in manufacturing has become more than small companies like ours can maintain with full-time, internal recruiters."

When measuring hiring efforts for effectiveness, Guy uses subjective key performance indicators (KPIs), such as whether the effort produced the types of candidates Darnel was looking for, and objective KPIs, such as the turnover rate among those who were hired.

Paul Bergeron is a freelance writer based in Reston, Va.

Article written by:  Orville Lynch, Jr.
Mr. Lynch, a member of the legendary two-time Ohio Civil Rights Hall of Fame Award winning Lynch Family. Mr. Lynch is a nationally recognized urban media executive with over 20+ years of diversity recruitment and serial entrepreneur with numerous multi-million dollar exits.
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