Cost per hire
What is the cost per hire?
Cost per hire is a key recruitment metric that helps organizations understand the total HR spending to hire an individual. It shows the different types of costs in attracting, sourcing, interviewing, and onboarding a new hire.
Why is it essential to calculate cost per hire?
Calculating cost per hire is essential for the following reasons:
- It provides visibility into processes that involve higher costs so that organizations can optimize them.
- It helps HR teams allocate their hiring budget efficiently by providing key insights on how much money each stage of hiring requires.
- It offers key information on how different sourcing channels and job boards work to find the best candidates.
- It keeps HR teams and C-level leaders informed about the financial consequences of hiring so that they can be prudent.
How is cost per hire calculated?
Here's a standard formula to determine cost per hire in your organization:
For instance, if an organization spends $40,000 on internal recruitment and $50,000 on external recruitment while hiring 20 candidates over six months, their cost per hire would be $4,500.
What are the different costs included in the cost per hire calculation?
Both internal and external recruitment costs are included in calculating the cost per hire. Here's what each of these categories includes:
- External recruitment costs: Money spent on job boards, sourcing channels, assessment tools, ATS subscriptions, and background verification.
- Internal recruitment costs: Money spent on onboarding, referral bonuses, internal job postings, new hire training programs, and other administrative expenses.
How can organizations reduce their cost per hire?
Here are some tips to help HR teams reduce their cost per hire.
Strengthen your employer branding. Invest in your employer branding strategies to build trust among your candidates. This can go a long way towards attracting high-quality candidates while increasing the offer acceptance rate. Create a strong presence in your social media channels with authentic content. Feature testimonials from your employees. Build a strong careers site that reflects your culture and makes it easy for your candidates to find online.
Encourage employee referrals. Employee referrals can be a great way to decrease your cost per hire. Because your employees understand your culture better, they're more likely to refer candidates who are a good cultural fit. Further, it can also decrease what you spend on multiple sourcing channels, job boards, and other advertisements. Create structured referral programs to speed up your hiring process.
Leverage internal mobility. Instead of always looking for top talent outside, you can also take the initiative to train and promote your existing employees. This can help fill your top and critical positions in a more affordable manner. Upskilling and reskilling are very cost-effective when compared to hiring.
Improve your interview process. Have a strong interview process in place to ensure that you find the right candidates for your open roles. Create assessments in a way that helps you assess their skills for the role and cultural fit. Eliminate unnecessary rounds and have well-defined evaluation metrics to reduce the time it takes for hiring and providing a good candidate experience.
Adopt HR tech tools. Intuitive HR tech tools can remove all of the bottlenecks involved in the recruitment process and make the entire process seamless and efficient. It can automate all of the routine administrative tasks, like resume screening, interview scheduling, communicating to candidates, and more. For instance, most of the systems can run through thousands of resumes to identify the right candidates with the right skillset in just minutes.