What is cost per hire?

Cost per hire is a key recruiting metric that measures the expenses involved in hiring a new employee. It’s calculated by dividing the total recruitment costs by the total number of hires. This metric offers insights into how much a company spends to hire qualified candidates and helps improve recruitment strategies.

Image showing the meaning of cost per hire

The cost per hire formula is straightforward:

Cost-per-hire = Total recruitment costs / Total number of hires

The recruitment costs can include external and internal recruiting costs, such as:

  • External costs: Job postings, recruitment agency fees, advertising, recruitment events, background checks, and drug tests.
  • Internal costs: Time spent by hiring managers, interview process expenses, and training costs.

This calculation also accounts for hidden costs, such as the impact of leaving a position vacant while searching for a new hire.

Why is measuring cost per hire important?

Understanding the cost-per-hire provides actionable insights into the recruitment process. Here’s why it matters:

  1. Identifying cost savings – Tracking the average cost per hire helps identify areas where the HR team can reduce recruitment expenses. For example, renegotiating rates with recruitment agencies or optimizing job postings can lead to significant savings.
  2. Better budgeting – The metric aids in creating a recruiting budget. It helps HR teams allocate resources effectively and forecast costs for future hiring needs.
  3. Evaluating ROI – Measuring cost per hire helps assess the return on investment (ROI) of recruiting efforts. Organizations can link costs to benefits, such as productivity and revenue generated by new hires.
  4. Comparing recruitment methods – It allows you to compare the effectiveness of various approaches, such as internal vs. external recruiting or direct hiring vs. agency hiring.
  5. Improving recruitment efficiency – By analyzing recruiting metrics, companies can pinpoint inefficiencies in their recruitment strategies, like lengthy interview processes or low-quality job postings.
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How to calculate cost per hire?

To calculate the cost per hire, use the cost per hire formula:

Cost per hire = Total recruitment costs / Total number of hires

Break down the total recruitment costs into categories such as:

  • External recruiting costs: Job advertisements, agency fees, recruitment events, and pre-employment screenings.
  • Internal recruiting costs: HR team salaries, interview costs, and onboarding expenses.

Additionally, consider hidden costs, such as the downtime caused by vacant positions. Using tools like an applicant tracking system can help track expenses more accurately.

Making cost per hire more efficient

Organizations can use the cost-per-hire calculation to refine their recruitment strategies. For example:

  • Focus on building a strong employer brand to attract candidates directly, reducing reliance on external costs.
  • Optimize your interview process to minimize delays and unnecessary expenses.
  • Leverage data from turnover rates to plan better and avoid frequent rehiring.

By consistently tracking this metric, HR teams can enhance recruiting efforts, reduce costs, and ensure they hire a new employee efficiently.