Recruitment Cost: Proper Evaluation of Advertising Budgets

Recruitment Cost: Proper Evaluation of Advertising Budgets [source: http://bit.ly/2tJjnoW]

Recruitment cost can quickly get out of hand when not properly measured and analyzed. Bad practices and false assumptions lead recruiters to wrong decisions.

Confusing pricing is difficult to understand [source: http://bit.ly/2tJJcVQ]
Confusing pricing is difficult to understand [source: http://bit.ly/2tJJcVQ]
In this post, we take a look at important evaluation factors that give employers a more complete picture of their application funnels. This article discusses:

  • Why cheaper is not always better in recruitment advertising
  • How to create comparable data points for optimal cost calculations
  • How to use correct hiring data in recruitment campaigns
  • Best practices (and what to avoid) for correct cost evaluation

False Assumption: Is Cheaper Always Better?

In many cases, the correct answer will be: it depends.

Cost-cutting, when applied to the application funnel, is not always the best idea. Many different factors enter into the recruitment advertising equation.

Thinking that “cheap is always better” ends up being just an easy way to frame the cost evaluation problem, but one that will fail to give any valid, actionable insights.

In practice, recruiters need to analyze their different types of sourcing channels more carefully. This means drilling deeper into sourcing costs in order to draw meaningful and useful conclusions.

Sourcing costs always have to be tied back to the ultimate recruitment (and/or business) goals that the company wants to achieve.


Case Study: Using Data to Tell the Right Story

Collecting and analyzing the right recruitment data can make the difference between a good and a bad hiring campaign. Incomplete data sets bring about less-than-ideal final pictures by the principle of “Garbage In = Garbage Out”.

The charts below illustrate the differences between incomplete data and full picture scenarios:

Incomplete calculus:

Not having the full data leads to incorrect conclusions [own figure]
Not having the full data leads to incorrect conclusions [own figure]
In this case, Scenario A looks better at first sight. It appears to yield “more value for the money” due to a higher number of applicants received within the recruitment funnel.

Full picture:

Include all stages of the application funnel to get a representative calculus [own figure]
Include all stages of the application funnel to get a representative calculus [own figure]
With a more complete data set at hand, recruiters can get a far better picture that includes the effective Cost Per Hire for each scenario.

Notice how in this case Scenario B yields less overall applicants but more hires, optimizing the bottom-of-the-funnel (BoFu) stage with a higher number of qualified candidates and a lower eCPH.

This highlights the importance for recruiters of having the right data at hand to grab actionable insights from their flows and funnels.


Cost Calculus: How to Create Comparable Data Points

As the job ads industry has evolved, different sourcing channels have become available for employers to advertise open positions and draw potential applicants in. This resulted in a variety of pricing methods and advertising options for employers.

Employers can find return-on-investment (ROI) especially difficult to measure within the scope of their particular application funnels.

The different types of costs that recruiters must take into consideration include the following:

  • CPM (Cost Per Mille): Also called “cost per thousand”, CPM is the cost of serving 1000 impressions of a single ad on a website.
  • CPC (Cost Per Click): This is the price paid for each click made by visitors on ads served. Unlike CPM, this metric does not take into account ad impressions.
  • CPA (Cost Per Applicant): The cost of a job seeker performing a specific action within the application funnel (filling out contact info, submitting a background check, etc.)
  • CPH (Cost Per Hire): This metric is the sum total of all recruitment costs, both internal and external, divided by the total number of hires made during a certain period.

Comparability: Usage of the eCPH Calculus

For the purposes of the CPH metric definition, internal costs are any recruiting costs generated inside the company, including HR staff salaries, organizational costs, infrastructure and others.

External costs include recruiting expenses related to any third-party vendors, such as agencies, job boards, HR software vendors and others.

Different applicant sources with different pricing methods can have varying degrees of impact on the CPH. Therefore, this metric needs to be enhanced in the form of the eCPH, or effective Cost Per Hire, so that the right costs are taken into consideration each time.

eCPH: Smallest common denominator across different pricing models [own figure]
eCPH: Smallest common denominator across different pricing models [own figure]
A correctly applied eCPH allows employers to compare how the different sourcing channels affect their costs as well as the points where their application funnels can be optimized.


Best Practice: How to Do Proper Cost Evaluation

An appropriate analysis of recruitment costs involves a series of good practices. Also, by being aware of what to avoid when calculating sourcing costs, recruiters will get more detailed pictures of their processes, further improving their results.


Bad practice:

Incorrect tracking

The main cause behind incomplete costing data sets, incorrect tracking happens when not all the relevant data points are measured. Recruiters need to keep track of crucial metrics such as clicks, conversions, and hires, among others.

Incomplete information

Poorly implemented tracking leads to incomplete information that prevents correct recruiting costs estimates from happening. This includes:

  • Costs not being compared using eCPH as a basis, thus omitting important factors.
  • Not taking into consideration the attribution window—the period when a click or view leads to a candidate submitting an application.
  • Attribution itself being incorrect, which means costs are only compared on the candidate’s first and last touch points on the funnel, not on a multi-touchpoint basis. For attribution to be correctly considered, recruiters need to understand the several touch points present across their application funnels as well as the different attribution models that apply for their particular flows.

Blended numbers

When application data is not fully collected and analyzed, the different metrics that comprise a recruitment funnel can get mixed up, leading to a confusing blend of numbers and unclear final cost pictures. This situation results in “comparing apples with oranges” cases, such as the scenarios depicted below:

Awareness vs. Re-targeting: Recruiters need to be aware as to why certain campaigns have higher/lower cost [own figure]
Awareness vs. Re-targeting: Recruiters need to be aware as to why certain campaigns have higher/lower cost [own figure]
Scenario A depicts a Top-of-Funnel (ToFu) campaign aimed at increasing brand awareness and letting job seekers know about the company. A campaign like this is intended to draw visitors to the jobs site and although the CPC might be lower, with a higher number of clicks, the resulting eCPH is also higher on average.

On the other hand, a retargeting campaign, such as the one from Scenario B above, is directed toward re-engaging job seekers that have not only already visited the company’s job site, but also started an application without fully completing it. Such a MiFu/BoFu campaign yields lower eCPH’s, with a higher number of applicants, interviewees, and hires.

To avoid blending numbers, these different types of campaigns need to be evaluated on a separate basis.


Good practice:

A proper evaluation of hiring costs requires, as a minimum, the application of the following good practices:

End-to-end tracking

Recruiters need to gather useful recruitment data on their application funnels, such as:

  • Number of users across the different stages
  • Time spent by the users on those stages
  • Drop-off rates across stages

A correct implementation of end-to-end tracking via multi-touch attribution lets employers collect the right data at all points, allowing a proper cost evaluation. A comprehensive analytics framework is key, not only for a successful cost evaluation effort but also for improving campaign performance and optimizing the recruitment and hiring processes.

Optimized application funnel

In order to enhance the conversion rates of sourced applicants, companies have to focus on really understanding how their application funnels are working (or failing to work). There are many ways to improve recruitment funnel performance, such as optimizing for responsiveness on mobile application sites, A/B testing to determine best performing flows, and unifying data insights across the several stages of the funnel.

eCPH and LTV data

Not all applicant sources impact hiring costs in the same way. Recruiters need to go beyond the standard CPH metric and start looking at eCPH, so that no crucial cost data are left behind.

Another metric that plays a key role when analyzing hiring costs is the lifetime value (LTV) that new hires bring to their companies. This value, also known as quality of hire, is highly customizable, as every employer determines the factors that enter into their LTV equation. Performance levels, times to reach full productivity, and retention rates are among the most common indicators that comprise the quality of hire data.


Bottomline: Be Smart About Evaluation and Payment

To perform proper, full-picture cost evaluations, while dispelling the “myth of the low CPA”, recruiters must take both applicant volumes and quality-of-hire into consideration.

A lower CPA with a higher number of applicants does not necessarily indicate a recruiting campaign’s success, as other metrics have to be included in the calculation. Evaluating overall application funnel performance requires considering the eCPH value so that different sourcing channels can be compared.

Considering the factors above, employers are able to calculate actual costs of their recruitment campaigns. Simplified calculations lead to incomplete views and wrong recruitment decisions.

For HR professionals, being smart about evaluating their current sourcing and application funnel costs includes using a true programmatic recruitment platform that can take care of all of the above while providing companies with a clearer comprehension of their application flows and campaign results.


If you have insights and opinions about this topic please share your thoughts.

Thanks, Team Perengo

 


Contact Sales

Request Demo

Email Course


Perengo is a programmatic recruitment platform.

High-growth businesses and Fortune 500 companies use Perengo to solve their recruitment challenges at scale. The platform provides tools for operational recruitment automation and strategic business intelligence.