Rethink Your Recruiting: Variable Costs vs. Fixed Costs

Higher temporary unemployment and better talent availability aren’t translating into easier or less expensive recruiting. As we’ve touched on in a recent post, getting former employees back, even long-tenured team members, is far from certain, and attempting to predict the shape of future business recovery is challenging at best.

Considering these challenges and uncertainty, companies are reasonably reluctant to add back fixed costs of any kind, including those related to internal recruiting functions, such as staff, job postings, and marketing. Yet it's vitally important to have an active talent acquisition effort to find the absolute best available candidates.

So what is the solution? Variable cost recruiting.

What exactly does variable cost mean in relation to recruiting, and how does it differ from fixed costs? Fixed costs are internal recruitment function costs you incur that do not change based on the volume of hires, such as full-time staff, management, advertising, technology, and more. Alternatively, variable recruiting costs relate directly to hiring volumes based on a per-hire cost, which can decline on a sliding scale tied to volume.

Greater variable costs are achieved by “outsourcing” aspects of the recruiting process. If you’ve always handled recruiting internally, you may be hesitant to delegate any recruiting functions to a third party. However, there are some popular misconceptions in this realm: Transferring the management of some recruiting functions doesn’t mean outsourcing hiring decisions, and outsourcing in this context is still working with a U.S.-based recruiting team. With the right partner, you can better leverage the time of your HR and Operations personnel involved in making the hiring decisions while achieving significant cost savings.

For companies that want to retain an internal recruiting effort, experience indicates best practice is a hybrid approach that allows internal resources to focus on their areas of highest return. For the recruiting of professional, high-level managerial, and C-Suite positions, internal recruiters are most efficient and cost-effective in finding candidates with the right skills, experience and cultural fit, rather than relying on search firms that typically charge fees beyond 20% of first year wages.

With respect to recruiting frontline employees, best results are achieved when HR is assisted by a partner that can bring economies of scale, process expertise and leading-edge technologies to facilitate high-volume recruiting needs. Like the hiring of a key senior executive, the successful engagement of a third-party partner has as much to do with cultural fit and flexibility as it does credentials and experience, and a highly customized solution allows for greater collaboration and cost effectiveness.

How cost effective is Source2? Our clients hiring “frontline” workers in high volume typically pay a per-hire fee of only 2%-5% of first-year wages. For positions of high skill or responsibilities, the cost per hire fee may be in the range of 5%-8%. By offering a volume-dependent sliding scale, it enables our per-hire fees to decrease as volume increases. Ultimately, we expect to reduce our client’s overall annual spend on recruiting by 20%-40%, as well as reducing time-to-fill on positions and lost opportunity costs of being understaffed.

In uncertain times, many organizations look to temporary or temporary-to-permanent staffing firms as the "path of least resistance" to filling frontline positions.  While this allows for more variable costs, there are also significant hidden costs with this model, in addition to yielding lower candidate quality and higher employee turnover. We've covered these hidden costs in more detail in a previous article. 

On average, using a temp staffing firm is 25% more expensive than the more fixed costs of internal recruitment functions, and a staffing firm is at least 50% more expensive than Source2’s solutions. Plus, with a performance-weighted model, Source2 gets paid for value when we deliver it, not in large upfront fees or deposits.

At the end of the day, taking advantage of variable costs is a very important part of the equation, but it’s only one part. For recruitment efforts to truly be effective, a cohesive strategy and multifaceted approach is paramount. Our role is to work in partnership with HR and operations leaders and customize our solutions to each client’s specific and evolving needs, while leveraging our lean process, client-branded promotions, and AI technologies. For more on our approach, connect with us at solutions@source2.com or via our Contact page.