What Is Cost Per Hire?
Cost per hire is a metric used to measure the cost associated with finding and hiring new employees. It’s typically calculated by dividing the total cost of the recruitment process (such as agency fees, advertising expenses, and internal recruitment costs) by the number of new hires. This metric helps organizations understand the financial impact of their recruitment efforts, and can be used to identify ways to improve the efficiency and effectiveness of the recruitment process.
The cost per hire calculation can include different type of costs, it can vary from company to company, such as job postings, agency fees, recruitment events, background checks, drug tests, and more. Additionally, the cost per hire formula may also include the time and cost associated with internal recruitment activities, such as interview expenses, training and development, and the cost of having a position open while waiting for a new hire.
Understanding the cost per hire is important for organizations because it can provide insights on the cost efficiency of their recruitment process and where they may be able to make changes to reduce costs and increase the return on investment.
Why Is Measuring Cost Per Hire Important?
Measuring cost per hire is important for organizations because it can provide valuable insights into the efficiency and effectiveness of their recruitment process. Some of the reasons why measuring cost per hire is important include:
- Helps to identify areas for cost savings: Cost per hire can help organizations understand the financial impact of their recruitment efforts and identify areas where they can reduce costs, such as by negotiating better rates with recruitment agencies or re-evaluating their advertising strategy.
- Facilitates budgeting and forecasting: By understanding the cost per hire, organizations can more effectively budget and forecast for recruitment expenses and make better decisions about where to allocate resources.
- Helps to measure the return on investment: Measuring cost per hire allows organizations to calculate the return on investment for their recruitment efforts and understand the relationship between recruitment costs and the benefits of new hires, such as increased productivity and revenue.
- Helps to compare the cost effectiveness of different recruitment methods: Cost per hire can be used to compare the cost effectiveness of different recruitment methods, such as internal vs external recruiting, direct vs agency hiring, and different advertising platforms.
- Helps to evaluate the efficiency of the recruitment process: Measuring cost per hire helps organizations to evaluate how much is spend on each employee being hired, and identify any bottlenecks or inefficiencies in the process.
Overall, measuring cost per hire is a useful way to gain insights into the recruitment process and make data-driven decisions about recruitment strategies and tactics. This can help organizations optimize the efficiency and effectiveness of their recruitment efforts, resulting in cost savings, increased productivity and revenue, and a better return on investment.
How to Calculate Cost Per Hire?
Cost per hire is typically calculated by dividing the total cost of the recruitment process by the number of new hires. The formula is as follows:
Cost per hire = (Total recruitment costs) / (Number of hires)
The total recruitment costs can include a variety of expenses such as:
- Advertising and job posting expenses
- Agency fees or recruiting services expenses
- Recruitment event expenses
- Pre-employment screening costs (background check, drug tests, etc)
- Employee referral program expenses
- Travel and lodging expenses for out of town candidates
- Any other relevant recruitment-related expenses
It’s important to note that the cost per hire may vary depending on the type of job and the location, but the formula remains the same. It’s also important to track the costs and the hires consistently over a period of time, to understand the trend and make adjustments as necessary.
It is important to note that, cost per hire calculation should take into account also the internal recruitment activities and expenses, such as the time and cost of interviewing, hiring and training, as well as the cost of having a position open while waiting for a new hire. These internal costs are often referred as “hidden costs”.
Once you have calculated the cost per hire, you can use this metric to understand the efficiency and effectiveness of your recruitment process and make data-driven decisions on recruitment strategies and tactics to optimize the process and reduce costs.