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Cost-Per-Hire Calculator Helps Companies Assess Hiring Expenses

Alyson Wise — Former Associate Director, Economic Equity Opportunity
Kat O'Neil — Fellow, Generation USA
Martha Laboissiere — Country Director, Generation USA

The full cost of hiring can be more extensive than you think.

Many companies see the importance of both assessing and minimizing their cost-per-hire. Talent managers use this metric to assess costs related to recruitment, onboarding, and training. But what about the indirect costs that are more difficult to calculate, like turnover?

Generation, a non-profit founded in 2015 by McKinsey & Company to recruit, place, and train opportunity youth in career-launching jobs, is working with The Rockefeller Foundation to increase the adoption of impact hiring practices in the workplace. Impact hiring provides employers with new approaches to talent practices—specifically related to recruitment, assessment, and support—that address their entry-level talent challenges while simultaneously improving employment outcomes for those facing barriers to opportunity, including opportunity youth, veterans, and refugees. As a part of this effort, Generation is developing a suite of diagnostic tools that enable employers to assess their pain points across recruitment, onboarding, training, and retaining employees.

The Real Value of Hiring

Kicking off this suite of tools is the cost-per-hire calculator—a digital tool that allows employers to input data and calculate the cost-per-hire across direct hiring, onboarding and training, productivity, vacancy coverage, and turnover. The methodology is straightforward and comprehensive—the tool calculates the number of hours and the hourly wage of individuals who contribute to the hiring process, adding in the costs incurred for advertising, background, and drug tests, uniforms, and other expenses. Harder to calculate costs such as productivity loss, coverage for when a position is vacant, and turnover are also included, allowing employers to more fully capture the end-to-end costs across the employee lifecycle.

Employers and hiring managers can use the findings in a myriad of ways. By putting a dollar value on the findings, the calculator may uncover or more sharply articulate the pain points employers experience. For example, many companies cite entry-level turnover as a major pain point, but one call center who completed the analysis can now demonstrate that replacement cost due to turnover was 43 percent of the total cost-per-hire, or ~$2400 of a total $5700 spent on hiring.

Capturing the Value for Employers and Employees

Tallying up the total cost of hiring annually may provide the fodder necessary to inspire employers to try something new, such as investing in an alternative recruiting process, revamping training, or reevaluating benefits to improve retention. In our experience, the value identified through this analysis is fully capturable. In one example, Generation is working with a healthcare provider to identify and realize the return on investment based on the insights from the analysis. We identified ~$2600 in value added per Generation hire, with an additional savings of $630 per hire if capacity needs were met with new hires rather than overtime.

From additional analyses, we can also demonstrate the value of such interventions to employees. In this same healthcare employer, the average monthly salary for our graduates more than doubled, providing increased financial stability for our learners’ families.

Be Among Industry Leaders

As this tool is in beta mode, Generation welcomes any and all feedback for how this calculator will be most useful to you and your organization. As the dataset becomes more comprehensive, a future version of the tool will allow for employers to benchmark their costs across anonymized companies in their industry.

Please access the calculator via this link, and let us know what you think!

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