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The Financial Case for Hiring a Recruiting Firm

April 2nd, 2015

The Financial Case for Hiring a

As seen on recruitingdaily.com.

Companies hire recruiters for any number of reasons, such as lack of internal bandwidth, access to the recruiting firm’s database of qualified candidates, the recruiting firm’s ability to find a very specific skill set, etc. Those are all excellent reasons, but as Betts Recruiting’s CFO, I’m going to focus this discussion on the benefits we can quantify (yes, we’re talking money!).

We specialize in placing revenue-generating employees, and our clients sometimes come to us after unsuccessfully searching for their own candidates. There’s a high opportunity cost of delaying the hiring of revenue-generators and that cost often far exceeds the placement fees that would have been paid to a recruiting firm. So how can we quantify the value of hiring a recruiting firm?

The key assumptions in this calculation are:

  • The number of weeks the recruiting firm can place the new hire faster than an internal hiring approach (or other recruiting firm). We’ll call this the “Hiring Time Advantage.”
  • The position’s monthly revenue quota when fully trained
  • The position’s projected annual compensation

The incremental revenue is:

Incremental_Revenue

(note that the time to ramp up to full quota does not impact the calculation as long as that time is the same between the two options being evaluated).

The incremental cost of hiring the employee equals:

Incremental_Cost

Then simply subtract the incremental cost from the incremental revenue to arrive at the incremental profit impact.

Let’s look at an example of this concept in action. An enterprise salesperson might have a monthly quota of $100,000 per month ($1.2 million annual), and average monthly salary of $10,000. If that person can be hired 3 weeks faster using a recruiter than through an internal approach, and assuming 4.3 weeks per month, that’s about 70% of a month. In this case, the incremental revenue gained would be 70% X $100,000 = $70,000. The incremental cost of having that salesperson on board three weeks sooner would be 70% X $10,000 = $7,000. So the incremental net profit in this example would be $70,000 – $7,000 = $63,000. Add in the intangible benefits of using a recruiting firm, and it’s a pretty convincing argument!

Financial decisions are often stated in terms of ROI (return on investment). For this particular situation, you can calculate ROI by dividing the incremental profit less the placement fee by the recruiting placement fee (and multiply the result by 100 to state as a percentage):

Finance_Math_2

Every week a revenue-generator’s seat remains open represents lost revenue that can wreck momentum for a team, division, or even the company. A skilled, experienced recruiting firm can also reduce or eliminate the potentially higher cost of hiring the wrong person, making the decision to hire a recruiting firm a no-brainer! At Betts, we focus on finding the best candidates for a role in the shortest possible time, which results in outstanding value for our clients.

Get more resources like this from recruitingdaily.com.

 

Andy Cuthill

is Chief Financial Officer at Betts Recruiting in San Francisco.



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