With the increased scarcity of talent driving the need for new recruitment sources, companies are more frequently looking to outsource some or all of their recruitment process. But the question remains as to how to justify it financially. Here’s how to strategically evaluate true recruitment costs when considering recruitment process outsourcing (RPO).
First evaluate direct costs:
In theory, an RPO should be able to provide a solution at or below your internal costs, keeping all things equal. Leveraging economies of scale, shared resources, technology, aligning lower cost resources to simpler tasks rather than having highly compensated, end-to-end recruiters, as well as other factors, allows the providers to offer cost-effective solutions.
Begin by using your current direct costs as a target to start with if you’re not looking for major improvements in service. That said, if you have volumes which are volatile, and you have expectations on time to fill or turnover, be sure to factor the additional resources which might be required to handle peak volume.
- Sourcing & Technology – RPO providers likely have agreements with major job boards and recruitment technologies to get better, high-volume pricing on those tools. The cost of those tools, as well as the cost for training and maintenance on the tools can be shifted to the provider.
- Agency Fees – If done properly, an RPO should be able to substantially reduce other third party fees. These expectations should be identified upfront and outlined in the business justification.
Additionally, don’t forget to include ancillary services which could also reduce costs by shifting the responsibility to the provider, such as the recruitment marketing, background checks, exit surveys, campus recruitment, etc.
Consider indirect costs:
Many companies simply evaluate their internal headcount against the RPO provider charges. There are many other factors which may influence your internal costs:
- Turnover – Studies suggest that cost of turnover could range from 10 percent to more than 50 percent of an individual’s annual compensation. Factoring this could have a major impact on your internal costs.
- Hiring Manager Time & Productivity – Some simple assumptions can be made to evaluate the cost associated with interviewing an excessive number of candidates, but is often overlooked, keeping managers from focusing on their key objectives. Setting goals with your RPO provider of the expected ratio of candidates to hires can often help in this area.
- Unfilled Positions – Depending on the roles open, you should weigh the cost of not having those positions filled against your cost of hiring. Whether they be software engineers, drivers, or manufacturing personnel delaying product to market or sales people delaying product getting sold, almost any role can have a direct impact on the bottom line. There is typically some assumptions that can be made which may outweigh direct hiring costs.
Next, ensure you have the right business model:
Often times, a rate structure which is “cost per hire” can create an unpredictable budget, and “cost per resource” will either limit quality of service or cost more than what you could do internally. Using a monthly fee, plus a lower per hire fee, is often optimal. Be sure to use a few examples of anticipated volume to make sure you aren’t surprised by an unexpectedly high bill. Typically, this pricing structure provides the best protection for both the client and the provider. And the higher you set the monthly fee, the lower the per-hire fee, which protects for seasonal or unexpected hires.
Ensure financial success with a “Results-Based” program:
- SLA and KPIs – be sure to align your Service Level Agreements and Key Performance Indicators with the financial results you expect to achieve. As long as the expectations are clear, most should be open to considering incentives for achievement of high retention rates, reduced fill times, etc.
- Monitor Results – Ideally, the RPO provider should be delivering a turnkey solution, including strict governance. Be sure to have the provider show examples of the reports you’ll be reviewing in conjunction with a regular cadence of meetings.
Overall, if both parties are focused on the same goals, it should be relatively easy to identify a recruitment process outsourcing program that either reduces your overall talent acquisition costs or contributes to a higher top line revenue (or ideally, both). And the impact of improved retention, reduced time to fill, and productivity costs used to justify the difference and provide the actual “return” on your investment.
When executed to its full potential, RPO has the potential to truly transform an organization. The Alluvion RPO model is built on leading-edge technology and analytics, and is executed by our talented team members. We prioritize developing mutual goals so that our clients hire a diverse, talented workforce, within an acceptable timeframe, at a cost they can afford.