How to get a handle on staffing spend

posted by Steve Lorde
18 March 2019

Staff remuneration is often one of a business’s largest overheads. However, while procurement professionals generally have a firm grip on the proportion of revenue which is directed towards payroll, the cost associated with recruiting this talent in the first instance often remains hidden.  

Recent data from the Recruitment & Employment Confederation (REC) shows that in the UK, the average recruitment fee for a single permanent placement increased by 6.4% in 2017/18 to reach £4,238. When coupled with separate figures from LinkedIn, which reveal that the average global staff turnover rate now stands at 11%, the price of managing staff turnover is apparent. 

Based on the above figures, companies in the UK with a headcount of just 250 shell out, on average, £116,545 a year on recruitment agency fees – even if they are not increasing headcount. Using the same methodology, it can be deduced that an organisation which employs 1,500 people can expect to spend at least £699,270 annually on agency fees, while a firm with 5,000 staff will hand over an average of £2,330,900 each year to recruitment firms just to manage talent attrition.

In addition, further costs are incurred when sourcing and securing senior hires and niche skillsets, where recruitment fees are often double the average – and that is before managing contingent workers or actively growing headcount is taken into account. However, historic practices where talent acquisition is managed disparately across several functions, departments or locations with no centralised budget mean that the true cost of hiring is often invisible. 

For procurement professionals looking to get a handle on staffing spend, the first step is to analyse and evaluate how the business has hired historically in order to inform future recruitment strategies. It is only through a comprehensive audit of existing processes, practices and talent providers that practitioners can identify opportunities for positive change.

Once the full picture around hiring costs has been revealed, procurement teams can begin working collaboratively with other functions to trim or even eliminate spend on recruitment agency fees. For example, through introducing a policy to advertise all positions internally, enhancing the company’s website to attract more direct candidate applications or implementing an employee referral scheme. Inviting incumbent suppliers to renegotiate terms of business can also be a particularly effective means to manage spend – especially when partnering with agencies which have been successful in filling a high percentage of vacancies, but to which hiring managers are still paying the rate card. 

Streamlining the internal recruitment approval process to improve visibility is also vital. As is introducing systems where recruitment activity is regularly recorded to provide transparency around KPIs, vacancy challenges and costs which is available to all stakeholders.   

There is no doubt that the cost of managing permanent staff turnover alone can have a significant impact on a company’s bottom line. However, complex, disjointed and inconsistent recruitment processes are often a barrier to efficiencies. Increasing awareness around the price of recruitment is crucial to building a culture of accountability – and procurement professionals are best placed to lead this change. 

☛ Steve Lorde is co-founder and director of Consult Inhouse.

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