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Almost constantly, talent acquisition departments are pressured to reduce their cost per hire. Finding the right balance in your company’s cost per hire can be tricky. You’re trying to please everyone from your CFO to senior executives all while providing quality talent to the hiring managers who are desperate to fill an open position.
This particular metric doesn’t accurately tell the whole story of an organization's recruiting abilities, but it shouldn’t be ignored either. In a recent SHRM survey, the average cost per hire for companies was $4,129. Unfortunately, that number can be quite a lot higher depending on the hiring needs and special skills required of the organization. The more mature the talent acquisition process, the more it costs. How can you determine your organization’s actual cost per hire?
How do you calculate cost per hire? Here’s how to do it the right way:
External Costs
Start with external costs. Consider all the tech, teams and tools you outsource to bring in those high-quality, culturally fit candidates. It’s crucial you understand each avenue used, what they provide and how they affect the bottom line. Gather spending data for the following costs:
- Job posting costs
- External assessments, background checks, etc.
- Job sourcing
- Career fair or recruiting event fees
- Staffing agencies
- Referral bonuses
These are common external costs, but they aren’t the only ones your organization may encounter. When you’ve gathered your list of external costs, break down each to ensure you’re accounting for each expense. For example, how many recruiters do you send to a career fair? Do you cover their travel and spending? Does your referral program also include tangible gifts or is it only cash? When accumulated, these details can add a lot to your bottom line.
Internal Costs
Similar to your external costs, what do you spend in-house to bring in the best talent? Do you use any of the following?
- In-house recruiting staff salaries
- Talent acquisition system costs
- Referral rewards
- Fixed costs (such as office rental, etc.)
- Interview costs (number of hours spent interviewing multiplied by the hourly salary of hiring manager)
Just like the external expenses, it’s important you look at each with more than just the monthly price of technology or rent. What little pieces fall under those big ticket items?
The Equation
Now it’s time to take the data you’ve gathered from both the external and internal costs and apply it to the equation below, including the number of hires you’ve made during that time. For example, if your expenses are for one month, then how many hires have you made within one month?
Cost per hire = [Total External Costs] + [Total Internal Costs] / Total number of hires in a given time period
You could take it one step further to better understand your cost per hire by breaking it down into different categories. For example, look at job positions, specific departments, leadership level and the source of the hire.
Once you calculate your cost per hire metric, what should you do with it? Find out:
What To Do with It
Applying your newly discovered cost per hire metric to help optimize your recruiting process is the most important part of the procedure. Consider examining your cost per hire regularly, calculating the cost by source of hire, analyzing the different departments and benchmarks, then using the data to make strategic decisions. Comparing your cost per hire data to other recruiting metrics such as, time to fill and quality of hire, is also important in order to see the correlations.
Not sure how to organize all this data into your recruiting budget? Get this free strategy guide to help you get the most ROI!
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