How to increase your 'stick ratio': reduce your recruitment costs by retaining new hires

An interview with Brett Hay, a recruitment specialist from Expense Reduction Analysts - Asia Pacific. 

After joining Expense Reduction Analysts in 2002, Brett brought a wealth of experience in senior general management roles with companies including Mobil Oil, Mitre 10, and BDS Recruit, a national recruitment firm. With superior consulting and strategic skills, Brett has a solid understanding of the operational needs and constraints of enterprise, corporate, and SME clients.

“Over the past 12 months, we have seen a marked increase in employers demanding better new-hire retention rates from recruiters on their preferred supplier panels. It comes down to one question: how can recruiters help employees stick around?” - Brett Hay

What are the key risks for employers at the moment?

Many employers regard their greatest risk to be the hidden cost of losing staff, and therefore view the reduction of staff turnover as the key to reducing risk. This is due to a shift in perception—businesses are recognising that a thorough initial recruitment process, even with upfront costs, is a better strategy in the long term than the high price of replacing employees.

Quality of hire and staff retention concerns are particularly acute for mid-level manager roles, even more so in organisations with 500–1,000 employees. Repeated hiring incurs the cost of onboarding, training, and the opportunity cost of mentors supporting the new hire.

This has led to a demand for more extended guarantee periods, which now feature heavily in recruitment contracts. Currently, the standard guarantee is for three months, but for a role earning $100–250k p.a., it takes at least three months for that person to become effective (if at all).

For executive positions, six or twelve month guarantees are more common, which covers this learning time. However, middle management roles are in need of a solution.

What are the indirect costs of staff turnover?

These are often the invisible costs. For a recruit to be trained and mentored for an initial period of 3 months, the indirect cost is the loss of productivity from not only the departed employee, but also that of the mentor during the training period. Also, the loss of team cohesion and tacit corporate knowledge from the departing employee can have an unmeasurable impact on the bottom line.

Payments for temporary to permanent conversions are under pressure as well. Previously, conversions after three months would attract a fee of 60% of the recruitment fee, and four to six months would be 25%. However, now clients are pushing back and fees use much lower ratios earlier in the relationship.

How can employers reduce their risks of cost blowouts?

There are five different ways to lower the risks:

1. Understand your business cycles

Many small businesses experience seasonal fluctuations, so casual and temporary staff can get you through the peaks without full-time staff commitments.  When engaging recruitment agencies, here are some questions you should ask yourself when it comes time to review the cost and the value for money proposition:

• How effective is your current recruiter in attracting quality staff you can retain?
• Do you have full transparency of your recruiter's pricing to know you are receiving value for money?
• Are you receiving adequate support from them with minimal time expended?
• Do you engage the minimum number of recruitment firms while maintaining the maximum level of coverage for all positions?

2. Recruit the right recruiter

The recruitment industry has a high staff turnover. Take time to select the right agency who listens to your needs, has a high level of integrity, shows a sense of urgency to assist and has excellent people skills.

3. Plan ahead

Engage an agency that can assist in the strategic planning process to get you through the peaks ahead of schedule. Be realistic with the deadlines you place on the agency.

4. Clearly specify what you want

Be very specific with the agency. Detail the list of roles you need to fill, provide a clear job description, complete with skill sets, competencies, and personality type.

5. Communicate your company culture

Finding the right technically qualified person is only half the job—they have to fit in. Explain the elements of your culture to the agency, so they find the right person for you.

How can you find the biggest opportunities for savings?

Negotiate your needs: Agencies charge a fee for the service based on the amount of work. Do you want them to do 'the lot' i.e. advertise, recruit, interview, induct, and payroll; or do you want to take a modular approach, and complete some tasks yourself? Ask for the fee for both permanent part-time as well as full-time.

Ask about add-ons: If after a while you wish to transfer a casual employee to permanent, know the applicable fees payable. On the flip side, if the employee is unsuitable, ask about the conditions of replacement. For permanent staff, most agencies will recruit a replacement at no charge during the first three months. Should you wish to have the agency to simply payroll a staff member, make sure you request this service upfront before you appoint the agency.

What technology is in the market to help employers manage their costs?

The recruitment industry can help automate parts of your business. From electronic timesheets and invoices to job searches online, and even video recording applications for candidates, technology can help you save time and operate smarter, not harder.

How is the hiring of millennials different from older candidate engagement?

This financial year, Expense Reduction Analysts has worked mainly with private organisations across various sectors such as health, manufacturing, and professional services. We have seen a strong emphasis on candidate relationships, as opposed to simply employers, than in the previous two years.

With the emergence of millennials in the workforce, recruiters are finding candidate engagement is extremely important for a successful appointment, if not more important or equal to client engagement. 

For many employers, the historical recruitment model of advertising for positions has fallen away in favour of sophisticated and fast communications via social media, across all candidate demographics.

Clients are also more eager for recruiters to promote their internal culture and CSR programs to attract more candidates.

Are there any new recruitment models coming onto the market?

Recruitment process outsourcing (RPO) has been well developed overseas. However, we are now seeing it mature in the Australian market.

What does this process entail and who would most likely use this service?

RPO is the term of a recruitment model where the recruitment function is brought onsite, outsourcing to a professional recruitment organisation. As the model matures, we observe RPOs are refining their toolsets and bringing a more advanced offering to our recruitment tenders, ranging from applicant tracking systems to HR systems, middle management training, leadership and development, and a focus on improving the client organisation overall as opposed to just recruiting.

Second-tier recruitment agencies are increasingly promoting RPO services, but they aren't as experienced as their first-tier competitors. Therefore, it will be a while longer before they can instil confidence in clients 'to invest all of their recruitment in one organisation'.

Competition between RPOs run by large generalists is on an even keel. However, we see more boutique providers entering the market.

About Expense Reduction Analysts

We help clients to support the health and growth of their business, whatever its nature, focusing on proactive expense and supplier management. As an Australian and global company, Expense Reduction Analysts can benchmark costs and spending, follow the latest supplier innovations, and have real-time data on changes and advancements. This strength gives Expense Reduction Analysts the recognition and power needed on supplier markets to best serve your interests.

For more information please contact Ruth Cohen at rcohen@expensereduction.com