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Follow Up-Outsourcing for Impact and VC Money

Monday, August 25, 2008 10:27 pm - by ccountouris
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I was chewing on some numbers over the weekend that tie together my post on Friday about the use of VC funds and the post of a few weeks ago about outsourcing for financial impact.

Let’s say we have a company that just raised $3 million and plans on hiring 30 people over the next 2 years. Assuming an $80K average comp per hire, they are going to add $2.4 million to the payroll. According to Staffing.org’s 2007 survey, the average company spends 14.9% of the compensation hired on recruiting expenses—internal recruiters, contract recruiters, applicant tracking systems, job board postings, research, occasional headhunter usage, etc.

Based on this estimate, this company will spend about $360,000 to hire these 30 people. If the company were to outsource the recruiting function (or just manage it well themselves), they could cut this down to 7% to 8% of compensation and save $180,000.

The savings represent 6% of the original invested amount — a pretty staggering number that should raise some eyebrows at both VCs and their portfolio companies.