What’s a Good Recruiting System Worth? A Fortune, According to a New Study

We’ve always known that a good recruiting system is necessary for any business to succeed, but to it helps every now and then to see the effects of poor recruiting spelled out in cold, hard numbers. The Boston Consulting Group recently published the results of its study on the financial impact of HR functions on a business, and the takeaway is clear: the value of a high-quality recruiting system cannot be overstated. After surveying more than 4,000 businesses, the BCG found that recruiting is far and away the most important HR function for any business. A company with a high-functioning recruiting system will see 3.5 times more profit growth and twice as large a profit margin as will a company with a low-functioning recruiting system. And the benefits of quality recruiting don’t stop there.

Consider employee retention rates, the second-most-important HR function according to the study. Companies with high employee retention rates experience 2.5 times the profit growth of low-retention companies. Given the high cost of replacing an employee, that makes perfect sense. According to another study by JDA Professional Services, replacing an IT employee who makes $60,000 a year will cost a company roughly $150,000. Hiring the new employee will cost $50,000, and the $100,000 stems from indirect costs such as loss of institutional knowledge and productivity.

In short, companies lose money when they operate at anything short of full capacity, but replacing workers means spending money on recruiting, on interviewing and on training. So how do the best-performing companies reduce employee turnover? They provide incentives and they raise morale – but most of all, they hire smarter.

When a company improves its employee selection process, it becomes easier to find employees who fit better with the company culture and who are therefore more likely to stay for a longer period of time. The Wall Street Journal agrees. In an article published last month, the Journal said, “Hiring the right people from the start, most experts agree, is the single best way to reduce employee turnover.”

The Boston study also reveals that the benefits of recruiting trickle down into the fourth-ranked function of “employer branding.” According to Dr. John Sullivan, the author of the summary we've linked to, branding “should not be counted separately because it is an integral part of recruiting.” This is a common belief among many HR experts – when a company's brand is seen in a positive light, high-quality talent comes knocking on the door. It's no accident that Google has been the most-desired employer among graduating college students for the last two years. They’re one of the world’s most famous and beloved companies, so it’s only natural that the best talent in the industry will flock to them.

When you get right down to it, the study's findings echo our own beliefs at The Resumator: a good recruiting system has a tremendously positive impact both on a business's bottom line and on its long-term health. So if you’re looking for a way to improve your bottom line next quarter, we strongly recommend investing in a better recruiting system. You’ll attract better talent, you’ll be more productive as a company and you’ll make more money each quarter, every quarter. That’s not our opinion, that’s a cold, hard fact.