Cost per Hire
HR Metric - Cost Per Hire
What (Definition)
Hiring plays a crucial role in expanding a business’s growth. Recruiters often measure a key recruiting metric known as “Cost per Hire” to evaluate the average cost of recruiting a new staff member. Several internal and external factors come into play when measuring and calculating this metric.
It is important for organizations to regularly track and analyze the cost per hire. If businesses notice it increasing over time, it can be due to inefficient processes, high turnover, or increased recruitment marketing costs. In this case, investigations must be carried out to cut down this cost.
Why (Benefits)
Cost per Hire is more than just a number. It's a valuable HR metric that enables organizations to optimize their recruitment processes, allocate resources efficiently, and help in decision-making. A lower cost per hire is generally desirable, as it suggests cost-effective recruitment processes which makes this a significant reason behind measuring this metric. Therefore by consistently monitoring and improving this metric, HR professionals can contribute to the overall success of their organizations.
Financial Efficiency: Cost per Hire helps organizations evaluate their recruitment budgets. A lower Cost per Hire indicates efficient hiring processes, minimizing unnecessary expenses.
Resource Allocation: HR departments can optimize their resources by identifying areas where costs are higher than expected.
Benchmarking: Comparing your organization's Cost per Hire with industry standards can reveal whether you are overspending or operating efficiently.
How (Calculation)
Before calculating the cost per hire, we have a few calculations to make.
Hiring Costs: External and Internal
Total Hiring Cost: This includes both internal and external expenses like job posting charges, agency fees, background check costs, interview expenses, training fees, etc.
In the given data above, internal expenses are marked in red, and external expenses are marked in yellow.
Internal Cost:
Total of Internal Cost = Sum of training cost + Sum of interview cost
Total of Internal Cost = $8+$8+$8+$8+$8+$8+$8+$8+$8+$8+$15+$15+$15+$20+$15+$15+$15+$15+$30+$20 = $255
External Cost:
Total of External Cost = Sum of background check cost + Sum of advertising cost + Sum of job posting cost + Other cost
Total of External Cost = $5+$4+$5+$5+$7+$2+$5+$4+$4+$4+$80+$100+$40= $265
Number of Hired Positions: Count all the new employees hired during the specific recruiting period.
The number of hires during the period of the given data is 10.
Once you get the results of the above calculations you can use the formula below to calculate the cost per hire.
Formula:
Cost per Hire = (Total Internal Costs + Total External Costs) / Number of hires
Therefore,
Cost per Hire = ($255+$265)/10 = $52
The cost per hire will vary from one organization to another and different departments of the same organization. This is because various factors are involved in different recruiting processes therefore the internal and external cost differs.
Interpreting Cost per Hire
A lower Cost per Hire is generally desirable, as it suggests cost-effective recruitment processes. However, it's essential to consider the quality of hires alongside cost. Striking the right balance between cost and talent acquisition is key.
Using Data to Improve Cost per Hire
Regularly track and analyze your Cost per Hire. If you notice it increasing over time, investigate the reasons behind it. It could be due to inefficient processes, high turnover, or increased recruitment marketing costs.
Cost per Hire is more than just a number. It's a valuable HR metric that enables organizations to optimize their recruitment processes, allocate resources efficiently, and make informed decisions. By consistently monitoring and improving this metric, HR professionals can contribute to the overall success of their organizations.
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Now it’s your turn.
Do you measure the cost per hire in your company? Please share your thoughts on how you do it below. We would like to hear from your experience.
To learn more about other recruiting metrics please visit HR reporting tools.