How to achieve cost reduction on external hiring?

In today’s dynamic business environment, optimizing costs is a crucial factor for the success of any company. One area where organizations often spend a significant amount and can realize substantial savings is in the hiring of external employees. These expenses offer a range of opportunities to reduce both direct and indirect costs, enabling companies to strengthen their competitive position and increase profitability. As an advisor in cost optimization, this article provides an overview of strategies and considerations for achieving cost savings in external hiring.

Distinguishing Between Direct and Indirect Savings
When pursuing cost savings in external hiring, it’s important to distinguish between direct and indirect savings. Direct savings are measurable and are often achieved through negotiations for a lower hourly rate for hiring. This can be accomplished through rate negotiations, volume discounts, or adjusting other contractual terms. Another way to potentially save is by critically examining the qualifications and experience required by hiring managers for external employees. This, too, can lead to a lower rate.

Indirect savings may be less tangible but are no less important. These stem from improving process efficiency, avoiding unnecessary expenditures, and optimizing allocation. This can be achieved by implementing more efficient workflows, using technological solutions to automate tasks, and streamlining supplier management.

Managing Inflation and Market Influences
A challenge in realizing and accurately measuring cost savings is dealing with market influences such as inflation, which can affect hiring costs. It’s essential to consider this influence when planning budgets and negotiating rates, but also when determining what savings have actually been achieved. For example, using long-term contracts with indexed rates can help limit the impact of inflation and maintain a stable cost structure.

Additionally, it’s important to continually monitor the market and maintain relationships with suppliers to respond to changing conditions. By remaining proactive and employing flexible contract terms, organizations can adapt to shifts in market demand and competitive pressure.
Impact of Reduced Hours vs. Lower Costs per Hour
A key consideration in cost control for hiring is the impact of limiting hours. This impact is often significantly greater than that of a minor reduction in costs per hour. Limiting hours will often have a larger impact on total expenditures. By making more efficient use of external hiring, organizations can significantly improve their operational efficiency.

Reporting Savings
Establishing and reporting realized savings requires careful consideration: what calculation method do we use, what corrections do we apply, what do we consider as realized savings, what do we consider as direct savings versus indirect savings or ‘cost avoidance’, etc. Especially if this will have an impact on internal team or employee objectives or firm commitments with suppliers, all of this must be carefully considered, agreed upon, and documented in advance.

Conclusion
Achieving cost savings in external hiring requires a holistic approach, pursuing both direct and indirect savings. By strategically negotiating rates, optimizing processes, and proactively responding to market influences, organizations can realize significant benefits and strengthen their competitive position. It’s important to invest time and effort into clear agreements regarding definitions and reporting from the outset to effectively guide towards achieving the desired outcome.
TalentIn can also assist your organization in identifying and implementing effective cost-saving strategies in the hiring of employees.