The Importance of Value Add Metrics

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Sep 14, 2018

Time to fill, cost per hire we are all familiar with the “standard” recruiting metrics but have you ever considered highlighting your value to the business? In his recent keynote speech at SourceCon Glen Cathey said, “sales 101 is sourcing 101.”

Sales professionals are widely considered the athletes of the professional world. The best salespeople are some of the most highly compensated professionals in the world. The reason that a good salesperson can make so much money and have such an influence on the business is that they are considered a revenue center. One of the challenges of recruitment has been that we are considered a cost center but is that fair?

I believe what Cathey said is true, sourcers and those who do recruit are salespeople. What makes me say that? For starters, I came into this profession via a staffing agency. I made cold calls and placed people and earned fees. Every month how much revenue I made was posted on a board in the middle of the office. Everyone knew how much everyone else was making.

Some of the most highly compensated individuals I’ve ever met were top staffing agency recruiters. Most of us do not work in the staffing world. Most of us work in corporate recruiting that sits in HR. I have always wondered why recruiting sits inside of HR instead of sales. I believe I know one reason why.

The thing I was measured on as an agency recruiter was revenue generated, the metric I was measured against in corporate was the number of hires. As an agency recruiter generally no one cared how many placements I made they only cared about the revenue I generated. It is also important to note that I while I was measured on revenue I was compensated on profit.

Now I know you might be thinking, well wait, as a corporate recruiter how can I show the revenue I generated? Well, honestly unless you are hiring sales people or are working to fill jobs against a paying contract it will be hard to demonstrate revenue generation, but do not despair, all is not lost.

What we CAN do is save cost. Now, this is where knowing your cost per hire matters. Here is how I would measure this. According to SHRM, the average cost per hire is $4,129. Now what I would do is estimate the cost of hiring that same person via a staffing agency. According to bounty jobs (in 2015 that is the latest data I could find), the average agency fee is $22,133. The difference is  $18,004. So I would first highlight how much money I saved the company on every hire I make.

Intuition would say that increasing revenue is more important than saving costs. However, the answer is a qualified no. The first reason is that you might have the idea that companies are in business to make money, but that isn’t entirely accurate. Companies are in business to make a profit. An accountant will tell you that a dollar saved is typically worth over five-times plus what a dollar in additional revenue is worth.

I know it sounds strange but let’s do the math. For the sake of ease, and credibility I will use an example from a site that advises business owners. Simple business solutions  gives the following example of this principle.

Cost savings fall directly to the bottom line of your business. When a dollar comes into your cash register, a portion of that dollar pays for the Cost of Goods/Services Sold. Another chunk of that dollar pays for your business overhead (rent, insurance, employee salaries, utilities, etc.). What’s left over is known as cash flow or earnings before interest, taxes, depreciation, and amortization (EBITDA).

When you reduce expenses, you increase cash flow. Cost reduction is a force multiplier because one dollar of cost savings is worth more than one dollar of revenue. Here’s an example:

In this example it takes $5.00 in revenue to generate $1.00 in cash flow:

Revenue: $100 ÷ $20 in Cash Flow = $5.00 (a 5:1 ratio)

So, if you are able to cost cut and generate $10,000 in cost savings, it would be the equivalent of generating an additional $50,000 in revenue.

$10,000 in Cash Flow x 5 (the number of revenue dollars required to produce 1 cash flow dollar) = $50,000.

And there we have it. The true value add of corporate recruiting in terms that the CFO of your business will easily understand. A cost savings to a company of $18,000+ could be worth as much as $90,000 in revenue. Cathey was right that recruiting is sales, what we do is sell our company, our candidate and our hiring manager and no matter how you want to do the math, we are a value add function. I think it is time we demonstrate it!