Cost-per-hire is one of the most important and most commonly used hiring and recruiting metric. This metrics measures how much it costs your company to hire new employees. In this blog post, you will learn how to calculate cost-per-hire (formula included!) and discover 6 effective ways to reduce it!
Recruitment Metrics: Cost-per-hire
What is cost-per-hire?
Cost-per-hire is one of the most important and most commonly used hiring and recruiting metric.
➡️ Download the Checklist of Most Important Hiring Metrics & Tips for Improvement!
This metrics measures how much it costs your company to hire new employees. It captures the total amount of money invested in finding and hiring your ideal job candidate.
Importance of cost-per-hire
Measuring, calculating and tracking cost-per-hire should be a priority for every company who wants to quantify the results of its hiring efforts.
Cost-per-hire is an important metric necessary to evaluate the cost-effectiveness of a company’s hiring process and efforts.
Evaluating cost-per-hire helps companies track all hiring costs in details. By analyzing these metric and its components, companies can gain valuable insights and discover what works and what doesn’t. That way, they can optimize and improve their future recruiting strategies and budget planning based in order to make smarter, data-driven decisions.
In short, measuring and tracking cost-per-hire helps companies achieve better hiring results with less money.
How to calculate cost-per-hire?
In 2012, The Society for Human Resource Management (SHRM), the world’s largest association devoted to human resource management, has issued an American National Standard for calculating cost-per-hire. In it, they have introduced a standard formula for calculating a cost-per-hire.
The formula for calculating cost-per-hire
According to an American National Standard for calculating cost-per-hire, in order to calculate the average cost per hire, you have to add up all the cost of hire (internal and external) and divide that sum by the number of hires in a certain time frame.
Here is the formula:
What are internal costs?
American National Standard for calculating cost-per-hire defines internal costs as expenses related to internal staff and organizational costs of the recruitment function.
Simply put, it is the money spent inside your company during the recruiting process.
Internal costs include:
Recruiting team salaries
Fixed costs such as physical infrastructure (e.g. office rental)
Hardware (e.g. computers, company phones, etc.)
Software (e.g. Applicant Tracking Systems, Microsoft Office, etc.)
Employee referral incentives.
What are external costs?
In the American National Standard for calculating cost-per-hire external costs are defined as expenses related to external vendors or individuals during the course of recruiting.
Simply put, it is the money directed outside of your company during the recruiting process.
External costs include:
Third-party recruitment agency fees
Advertising and marketing expenses (e.g. job boards, social media ads, etc.)
Recruiting events costs (e.g. career fairs, campus recruiting events, etc.)
Travel (for candidate or hiring team)
Contractors (website design, etc.)
Assessments (surveys, job trials, etc.)
Calculating cost-per-hire: Important remark
It is not mandatory to use all of the variables listed under either internal or external costs. You should use variables that are applicable to your company and meaningful for your hiring process.
For example, some companies don’t cover the relocation expenses or offer a possibility of remote work. These companies will thus omit relocation costs form calculating their cost-per-hire.
The important thing is to be consistent in the way you calculate your cost-per-hire.
What is the average cost-per-hire?
According to the Society for Human Resource Management’s (SHRM’s) Human Capital Benchmarking Report, the average cost-per-hire in the United States is $4,129.
Bersin by Deloitte presented similar findings in their Talent Acquisition Factbook, estimating that the national average cost-per-hire is $4,000.
You can use this information as relevant benchmarks.
However, you should keep in mind that this is the national average. The cost-per-hire can vary depending on many factors, such as:
Seniority of the positions being filled
Specific roles needed to be filled
For example, Bersin by Deloitte found that the average national average cost per hire ranges from $3,033 in healthcare to $5,611 for manufacturing jobs.
How to improve cost-per-hire?
Each company has a different hiring process and budget, so there is no single, universal way to improve your company’s cost-per-hire.
This is why the first step in improving your cost-per-hire should be embracing an analytical mindset. Get curious! Analyze your current recruiting process and all the associated costs. Find out what works, and what doesn’t.
Which recruiting expenses are justified and have proven results? Are there some bottlenecks or channels which are just a waste of money because they don’t provide satisfactory results? Which channels and recruitment strategies provide the best return on investment?
Dig deep and try to find answers to the above questions. This is the only way to make more informed decisions and learn how to spend your recruiting budget more wisely - in a way that brings maximum value to your company.
That being said, there are some common strategies for reducing recruitment costs. Read on to discover them! 🙂
6 ways to reduce your cost-per-hire
Before you apply any of these cost-reducing strategies, think carefully which of them makes sense for YOUR company. Implement a few and experiment to see which one is your winning cost-reducing strategy.
Here are top 6 recruiting strategies which can help you reduce your cost-per-hire:
1. Use free job boards
There are many free job posting sites and job boards which allow employers to post their job openings for free and reduce their recruiting costs.
➡️ Check out the list of The Best Free Job Posting Sites!
2. Increase employee referrals
Do you have a structure employee referral program? Do you offer innovative employee referral incentives? Employee referral programs can improve time, cost and quality of hire, Do I need to say more?
➡️ Check out our Guide for Setting Up an Employee Referral Program!
3. Build a talent pool
Building and maintaining a talent pool of interested, qualified candidates can do wonders for your cost-per-hire. When new positions open, you’ll already have a list of great, interested candidates!
➡️ Learn Everything You Need to Know for Building and Maintaining a Talent Pool!
4. Conduct group interviews
Conducting interviews with multiple candidates at once is a great way to save your time and money!
➡️ Check out the Guide for Conducting Group Interviews!
5. Consider outsourcing hiring
There are pros and cons of using a recruitment agency, but in certain cases outsourcing your hard to fill roles can help you save time and money!
➡️ Check out The Ultimate Guide for Choosing a Recruitment Agency!
6. Automate your recruiting process
Modern recruitment software has many benefits and features which can help you make your hiring process faster, more streamlined and effective, thus reducing your recruitment costs.
➡️ Download free eBook 2019 Guide for Buying a Recruiting Tool!