Cost per hire is a human resource management metric used to calculate the total cost of filling a vacant position within an organization.
The process involves adding all internal and external recruitment costs, then dividing the total cost by the total number of hires.
What is cost per hire?
HR teams use cost per hire (CPH) as a recruiting metric to determine the average amount of money spent on each new employee hired by the organization. The metric is applied to both in-office recruitment and virtual recruitment.
The process calculates the total cost of incorporating new employees into the company, including the expense of the recruitment process, equipment, administrative costs, and more.
Why do recruiters track cost per hire?
Tracking the cost per hire helps recruiters and organizations make informed decisions about their recruitment strategy, helping to manage recruitment expenses and align with business goals.
Recruiters track cost per hire for several reasons, including the following.
- Measure the effectiveness of the recruitment level
- Control recruitment expenses
- Improve efficiency in the hiring process
- Demonstrate value to the organization
How to calculate cost per hire?
Calculating the cost of hiring is a simple calculation that follows an easy hire formula:
Cost per hire = Total recruitment costs (internal and external) / Total number of hires
Breaking this formula down, the steps to calculate cost per hire is as follows:
- Add external and internal recruitment costs within a specific time period
- Divide the above total by the total number of hires within the same period
- The result is the cost per hire from identifying a candidate to hiring, onboarding, and training them
These recruitment costs include internal and external recruiting costs. Internal costs include in-house talent acquisition team salaries, employee referral bonuses, salaries for hiring managers, and learning and development costs for the recruiting team.
External expenses include advertising costs, recruiting agency fees, job board fees, recruiter salaries, relocation expenses, travel expenses, recruitment technology, reference and background checks, and drug testing.
Dividing these combined costs by the number of hires provides an average cost per hire, determining the cost to fill one position.
There are other methods of calculating cost per hire. For example, cost-per-hire comparable (CPHC) considers different data sets that are relatively common among various companies. In another example, recruiting cost rate (RCR) is used by SHRM and ANSI, which includes total annual compensation for new hires in their first year as the dividing factor.
Factors that affect the cost per hire
The cost per hire will differ from one organization to another, depending on several factors, such as the following.
- Recruitment sources such as job boards, career fairs, and social media
- Time required to fill a position, with longer recruitment processes being more expensive
- Company size as larger organizations tend to have complex recruitment processes that require more resources
- Industry and the level of competition for top talent acquisition (and availability of qualified candidates)
- Higher turnover rate and poor employee retention lead to more frequent recruitment and higher recruitment and onboarding costs
How to optimize your cost per hire
The following methods help reduce recruitment costs and streamline the hiring process.
Utilize social media platforms for job postings
Take advantage of social media platforms as a cost-effective way to reach a wide audience of potential candidates. By creating job postings on social media platforms, such as LinkedIn and Facebook, you can connect with job seekers interested in your open position. Social media’s targeted advertising options help to reach specific audiences based on location, interests, and skill — even when hiring an international team.
Employee referral program
By incentivizing current employees to refer qualified candidates, you can tap into a pool of pre-screened candidates more likely to be a good fit for your organization. Employee referrals can also speed up the hiring process and reduce recruitment costs by eliminating the need for extensive advertising and HR sourcing efforts.
Improve candidate screening techniques with AI
AI-powered recruitment tools can help you quickly and efficiently screen large numbers of resumes, saving time and reducing the workload for recruiters. By using AI to streamline the candidate screening process, the hiring team can focus on building relationships with top candidates and improving the overall candidate experience. This can lead to better hiring decisions, lower turnover rates, and ultimately lower recruiting budgets while improving the quality of hire.
Automate recruitment processes through Applicant Tracking Systems (ATS)
An ATS is a recruitment software that streamlines the recruitment process, from posting job ads to screening resumes to scheduling interviews. By automating these processes, recruiters can save time, reduce errors, and improve efficiency, leading to a more cost-effective hiring process. An ATS can also provide valuable insights into important metrics such as time to fill, cost per hire, and applicant source, helping recruiters identify areas for improvement and optimize their recruitment strategy over time.
Deel offers a way to streamline HR admin, including onboarding, payroll, and compliance. Hire, pay, and manage your global team with Deel, and free up your time to focus on business growth and strategic tasks, while tracking your HR metrics through our customizable reporting feature.
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