Is recruitment bleeding profit from your organisation?

Loss of employees whether it be by dismissal or more commonly resignation is frequently regarded as simply a matter of fact and the recruitment of new employees part of what managers are employed to do.

Have a look at our identification of the issues and our suggested actions to improve your profit.

Recruitment is costly and much of the expenditure incurred is typically overlooked. Costs that need to be considered are:

The outlays following from a termination

No dismissal is risk-free and reducing the risk may involve considerable management time. By comparison, training interventions, good supervision and, sometimes, counselling can avoid a dismissal and hence the risks and costs associated with it.

Resignations, so long as they are truly voluntary may carry no risk but both dismissals and resignations create administrative expenses.

Direct recruitment costs

These are the obvious costs, advertising, administration of applications, administration of references and agency fees if these are applicable.

There may be, and should be in most cases, further expenditure on selection because interviewing is rarely sufficient for a sound decision on what will be a significant investment.

Opportunity costs

These are are so easily overlooked. A trawl through social media may avert advertising fees but someone has to organise social media postings and keep any interaction going.

Administrative time might be quantified but often there is invariably unaccounted management time in shortlisting, interviewing applicants and often discussing selection.

This is valuable executive time that adds no direct value to the business. If you expect every salary paid to add at least half its cost to the bottom line then this executive time takes one and a half times its own salary off the bottom line.

Covering the vacancy

The costs here will vary according to the nature of your business. It may be agency cover, overtime premiums, or lost business (i.e. lost profit). The amount you spend in covering the vacancy is frequently overlooked.

Getting the new employee up to speed

Even in the simplest of operations a new employee will need time to understand your systems, meet individuals that are relevant to their job and get to know the terrain whether it be a care home or premises to be cleaned. This process is likely to take from a few days to, for those in positions of responsibility, many months.

The induction crisis

More employees leave an organisation in the first four months than in the first two years of service. This is a cost because it will mean re-running the recruitment process.

After taking into account the hidden or forgotten elements, recruitment costs range from around £900 per unskilled employee recruited (CIPD) to £30,000 or more (Oxford Economics). If you are recruiting care staff or cleaners the lower figure may be appropriate; and if you are recruiting several at a time there will be some economy of scale. But for managerial or professional positions the overall cost could easily equate to their annual salary.

Furthermore, estimates from the CIPD put the cost of an individual recruitment mistake at two and a half times their annual salary.

Look at how many you are recruiting each year and multiply it by a typical figure, say, £5,000. Then take half that amount. If you can reduce recruitment by 50% then that is the amount you could add to your profit.

For a more accurate estimate, let us know by email the level(s) of staff for whom you recruit we can let you know the corresponding expenditure.

Unfortunately, recruiting can be seen as a “raison d’etre” for some managers; the idea that it can be reduced is a threat to their own employment. But such managers should be adding value to the business and they can achieve that by reducing the amount of recruiting they need to do.

To reduce levels of recruitment you need to:

  • attract the best talent through good employer branding
  • increase your pool of applicants through diversity policies such as flexible working
  • make the right choice(s) from your candidates with appropriate selection processes
  • retain your appointee(s) through tailored induction
  • Keep the people you’ve got, for which you need:
    o Well-trained supervisors
    o Transparent policies
    o Excellent employee communication
    o Fair work-life balance
    o Great leadership

Don’t accept recruitment as an inevitable fact of life,
instead aim to use it only when you need to bring in new blood.

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