Navigating the current economic storm, startup founders must focus on the most important resource for their early stage startup to survive and grow: the people. However, the biggest difference between hiring in a healthy economy and hiring now is that there is no room for error.
According to Harvard Business Reviewthe price of a bad hire is 30-50% of their salary, which could seriously hit start-up budgets in 2023. To make fewer mistakes, founders should take a more data-driven approach to hiring.
A good place to start is to keep track of these three metrics:
Startup founders need to focus on the most important resource for their early stage startup to survive and grow: the people.
Сost per rental
Cost per hire is one of the most essential business metrics to include in a company’s profit and loss report. It helps a hiring team test different strategies and discover areas where they can cut costs and optimize hiring.
This metric is used to calculate the total costs a company incurs in attracting, recruiting, and hiring employees. To calculate the cost per hire, add up all the direct and indirect costs of the hiring process and divide by the number of hires within a given time period.
First define the period. It can be a month, a quarter, half a year or a year. I monitor the costs per rental on a monthly basis to continuously optimize the process.
Second, add up all the expenses. Factor in internal costs such as recruiter salaries and bonuses, business email account licenses, the cost of applicant tracking software and LinkedIn Premium, and training courses for new hires.
Also include outside costs of job postings and referral programs, agency fees, background checks, and relocation costs.
Cost per hire ($) = (Internal recruiting costs + External recruiting costs) / Number of hires made
If your company spends $10,000 per month on recruiting and hires four people, the cost per hire is $10,000 / 4 = $2,500.
For an early-stage startup, a reasonable cost per hire is estimated to be between $3,000 and $5,000. A recent study say the average benchmark is $4,700. If the cost exceeds $6,000, it makes sense to review your strategy.
To identify the stages that involve the highest costs and find ways to cut costs, it is essential to assess each stage of recruitment. If candidates reject your offer, collect feedback on the reasons for rejection and conduct new research on market salaries. You may be offering too little.
If you hire infrequently, outsourcing recruiting can be more cost-effective than handling all operational costs in-house. Compare your current recruiting costs with recruiting agency pricing plans, which typically charge 15-35% of a new hire’s annual salary.