Cost per hire
What is cost per hire?
Cost per hire is a metric that measures the cost of recruiting and hiring a new employee. This figure includes all of the expenses associated with finding and onboarding a new hire, including advertising, agency fees, background checks, and training.
Cost per hire is the total cost of recruiting a new employee. It includes a wide range of factors such as :
- The cost of advertising the job
- Recruitment consultant fees
- Referral rewards
- All the costs involved in running assessment centres and interview days
- Software costs such as ATS.
Why is it important to know cost per hire ?
Knowing and understanding your cost per hire can help you make the recruitment process more streamlined and efficient. With this information, you can save your organization money and also use the information to help argue a case for better employee retention programs.
Additionally, internal recruiting costs are an important metric for HR managers because it helps them to understand the financial impact of their recruitment efforts. This data can be used to improve the efficiency of the hiring process and reduce internal and external expenses.
How do you calculate cost per hire ?
Cost per hire is a simple calculation, so long as you can identify the full range of costs involved in the hiring process. You divide the total recruiting costs over a set period by the number of employees hired over the same period.
The total cost of recruitment ÷ Number of employees hired = cost per hire.
To calculate the cost per hire, you will need to gather data on all of the costs associated with recruiting and hiring a new employee. Once you have all of the necessary data, you can divide the total cost by the number of hires.
For example, if it cost your company $5,000 to fill a position and you made 10 hires, your cost per hire would be $500.
How to use cost per hire data ?
You can analyze your cost per hire data to understand opportunities for making your overall talent acquisition process more efficient. This data can be used to benchmark your company's performance against others in your industry.
However, if you see a drastic increase in your cost per hire overtime, it could be an indication that your company is having difficulty attracting and retaining top talent.
- Review the internal and external costs per hire data regularly to understand how other factors may be affecting your results. It is important to recognize that an increase in cost per hire is not always a bad thing – it may simply reflect a recruitment drive to supply business growth.
- Consider the ‘quality’ of each hire when reviewing your cost per hire. It is important to remember that a lower cost per hire does not necessarily mean you are getting better-quality candidates.
- Analyze cost by department and position. This may help you identify opportunities to lower costs. For example, suppose you find that the cost per hire for customer service representatives is significantly higher than the cost per hire for accounting positions. In that case, you may want to focus on improving your recruiting process for customer service representatives.
- Review the data in combination with other inputs. It is important to review cost per hire data alongside factors such as retention or source of hire to understand the quality of the recruitment that the investment in hiring delivers.
- Use cost per hire data to negotiate with vendors. Once you have a good understanding of your cost per hire, you can use this data to negotiate better terms with vendors such as recruitment agencies.
How can I improve my cost per hire ?
As a business owner or HR manager, it is important to track cost per hire because it can give you insight into how efficient your recruiting process is. If the cost per hire is high, it may be an indication that your talent acquisition process is not as effective as it could be.
If reviewing your cost per hire data has identified an opportunity for reducing spending, there are several ways you could start improving your cost per hire by carefully reducing costs. These could include :
Using technology :
By using an ATS application, you can reduce the amount of time spent on the recruiting process and potentially exclude the need for external recruitment specialists.
As well as reducing costs, using an ATS will also make the process smoother for your team and candidates.
Reducing your reliance on external agencies :
If you are using external agencies to help with your recruitment, you can try to reduce the number of hires they make on your behalf. One way to do this is by using an internal referral system to encourage employees to refer candidates they know.
You could also try to negotiate better terms with your external agencies. For example, you could ask them to lower their fees or agree to a lower success rate.
Improving your job Ads :
The quality of your job ads can play a big role in the cost per hire. If you are attracting a lot of unqualified candidates, you may want to improve the way your job ads are written.
Make sure you are clear about the skills and experience you are looking for, and try to use specific language that will attract the right candidates.
It would be best if you also considered using different channels to post your job ads. For example, if you usually post on job boards, you could try using social media or online communities instead.
Focusing on quality over quantity :
It is important to remember that a lower cost per hire does not necessarily mean you are getting better-quality candidates. When reviewing your cost per hire data, make sure you also consider the quality of the candidates you are hiring.
If you want to focus on hiring quality candidates, you may need to invest more time and resources in your recruitment process. For example, you could spend more time on candidate screening or use assessment tools to help you identify the best candidates.
Conducting an internal audit :
You may want to consider conducting an internal audit of your hiring process to identify any areas where you could be more efficient. An audit can help you to understand where you are spending the most money and identify any areas where you could reduce costs.
After conducting an internal audit, you should develop a plan of action to improve your recruitment process. By carefully reviewing your cost per hire data, you can identify areas where you could reduce spending. By making some small changes to your talent acquisition process, you can potentially save a lot of money on your hiring costs.
Leveraging existing employees :
By setting up an employee referral scheme, you can cut advertising costs and find candidates who already know about your organization, thanks to the employee who recommended them.
As mentioned above, employee referrals can be a great way to reduce hiring costs.Encouraging employees to refer candidates they know can save you time and money on sourcing and screening candidates.
To encourage them to refer candidates, you could offer financial incentives or prizes. You could also make it easier for employees to refer candidates by setting up an internal referral system.
Embracing boomerang employees :
By instigating a warm offboarding and staying in touch with ex-employees, you can reduce the cost of recruitment. When a former employee decides to come-back to your organization, they are known as a “boomerang employee.”
Boomerang employees can be a great addition to your team, as they already know about your organization and culture. Boomerang employees can also hit the ground running, as they will already be familiar with your systems and processes.
To encourage boomerang employees, you could keep in touch with them after they leave your organization. You could also offer them a “try before you buy” period, where they can come back and work for your organization on a short-term basis before making a commitment to return permanently.
Improving company culture :
Companies with strong company cultures are automatically more attractive to potential employees. What is more, existing employees are less likely to leave.
By building up your company culture, you reduce your cost per hire because quality candidates will proactively approach you, thanks to your strong employer brand. Added to that, you will have fewer vacancies to fill because your turnover will be lower.
To sum up
The cost per hire is an important metric to track because it can help you to understand where you are spending the most money on your hiring process. By reviewing your cost per hire data, you can identify areas where you could reduce costs.
Cost-effective recruiting is all about finding the right balance between quality and quantity. Finally, remember that strong company culture can also help you to reduce your cost per hire by making your organization more attractive to potential employees.