Candidate experience economics

Every year at the CIPD conference the discussion seems to turn to “HR needs to be more commercial”. That includes proving how the function can influence key business metrics including customer retention, revenues and profits.

Taking that to heart I’ve spent some time re-visiting the economics of candidate experience. As every recruiter will know, candidates can often be existing or potential customers too. And how they are treated when they apply for jobs can really influence their consumer behaviour.

Estimates vary, but the reports I’ve seen suggest that anything up to 8.9% of candidates who have a negative experience go on to change their buying behaviour. If that’s not a commercial issue HR can influence I am not sure what is.

According to one recent article, only 11% of employers collect data on candidate satisfaction. So I reckon most employers don’t have any real idea how much candidate experience might be costing them.

I decided to explore that idea a bit more. My aim being to devise a basic formula for how much revenue (or profit) organisations might be haemorrhaging through their recruitment experience.

After a few attempts I finally ended up with this:-

Q = N x V x P x D x E x C

It might not capture every variable but it is a useful start for some initial calculations.

Q is the “qualified risk” of poor candidate experience. It depends on all sorts of variables including the typical value of a customer (V), the ease with which they can change their buying pattern (E) and their ability to cause contagion (C) to others including friends, family and colleagues. In these days of social media broadcasting your experience has never been easier.

N is the number of candidates you reject in a year.

P is the proportion of candidates who are also potential customers. If you sell luxury or large capital goods that number could be pretty small. However no business is completely immune. The candidate could be influencing the purchase of goods and services on behalf of their current employer, not just themselves.

If you are a general retailer then P could believably be 100%. Who isn’t a potential customer of the big supermarket chains?

D is the dissatisfaction rate – ie the percentage of candidates who will actually change their buying pattern as a result of a negative candidate experience. Most research suggests this is in single figures but I have seen figures north of 30% quoted in some places.

When I ran some sample numbers through this formula the sums involved were eye-watering. That’s even with D as low as 7%. In some cases tens of millions of pounds were involved. Just the sort of big numbers any HR professional could use to get the attention of their Finance Director or CEO. If that isn’t commercial I don’t know what is.

Losing customers costs money. Replacing those lost customers costs more money. Shaving 1% off your cost per hire could be insignificant if it results in increasing your dissatisfaction rate (D) by the same amount. Lots to think about the next time the recruitment team re-visits their KPIs.

The commercial agenda for HR has to be to drive the Q score down. In fact I wonder whether, with the right candidate experience, you could end up with a negative Q score? That means your candidate experience is so good people switch to buying your goods or services as they love what you stand for as an employer.

HR leading the way on new customer acquisition? Now that would be a talking point.

I have written up my formula in a short paper – to request your free copy please click here.