What’s Your Cost-Per-Hire & How Much Does It Matter?
10.24.19 | From the moment you post a position to the time you make an offer, how much do you spend on recruiting a candidate? Moreover, how much should this cost factor into your recruiting strategy?
According to Glassdoor, the average U.S. employer spends about $4,000 to hire a new worker. Calculating your cost-per-hire is simple (we’ll show you how), but deciding how to use it is more complex. Let’s start with the basics.
Calculating Your Cost-Per-Hire
The following formula has been standardized by the Society for Human Resource Management (SHRM) and the American National Standards Institute.
(Internal Costs) + (External Costs)
Number of Hires
By adding your costs and dividing them by the number of hires, you will discover your cost-per-hire. To achieve the most accurate figure, include every line item that is involved in the hiring process.
Internal Cost Examples:
- In-house recruiting staff (salaries, bonuses, continuing education)
- Software, i.e. applicant tracking system
- Employee referral bonuses
External Cost Examples:
- Job sourcing (job boards, career fairs)
- Background checks, drug testing
- Travel expenses for job interviews
How You Can Use It
Your cost-per-hire can give you valuable insights and help you optimize hiring practices.
Fiscally speaking: This metric can help you create more accurate budgets based on hiring volume. You can also use the formula to determine how recruiting costs differ among departments, positions, locations, etc. Additionally, it allows you to compare your spend with that of your industry peers.
Opportunities to optimize: As Google points out, cost-per-hire is most useful when it’s combined with other metrics. For example, compare your hiring costs with the quality of your hires, and/or the time to hire. Does spending more money result in more quality employees or a faster hiring cycle? Which job boards deliver the best return on investment (ROI)? Don’t keep your data in silos; use it to improve your recruiting practices.
What to Consider
Whenever expenses are measured, many professionals jump into cost-cutting mode. However, sometimes this is counterproductive. One expert, Dr. John Sullivan, goes so far as to encourage employers to do the complete opposite. Here are a couple of reasons:
Being competitive can be expensive: As the war for talent rages on, companies are investing more in recruitment. Employers must keep pace with the market and understand that hiring top talent may cost up to 50% more. First impressions and your corporate image is everything. A low-budget recruiting process can compromise the candidate experience and turn off desirable recruits.
The business impact of a good or bad hire far outweighs the cost-per-hire: A top performer’s impact can equate to millions of dollars. On the other hand, a single bad hire can cost a company millions, i.e. via a harassment lawsuit. The positive and negative impacts can be great; yet for most companies, the average cost-per-hire is a tiny fraction of its corporate spending.
Calculating your cost-per-hire can lead to great insights and recruiting improvements. However, when analyzing your spend, don’t focus solely on cost reduction. Be strategic, consider your hiring goals, and maintain perspective.