cost per hire.
what is cost per hire?
Cost per hire refers to the total amount an organisation spends when they recruit and hire a new employee. It is a vital performance metric that helps gauge the efficiency of the organisation’s recruitment process.
what does cost per hire include?
There are two main components of cost per hire: internal costs and external costs.
- Internal costs: Internal costs may include the salaries and benefits of hiring managers, the cost of recruitment software, referral incentives, compliance costs, and physical expenditure (e.g., meeting room rental).
- External costs: External costs may include advertising expenses, travel costs, agency fees, job fair charges, and so on.
how is cost per hire calculated?
The formula for cost per hire is:
cost per hire = total recruitment cost / total number of hires
total recruitment cost = total internal costs + total external costs
Let’s say an organisation has spent £120,000 to recruit 30 employees in the last financial year. Their cost per hire averaged £4,000 per employee (£120,000 / 30 = £4,000), in other words, they have spent £4,000, on average, to bring each new employee on board.
what factors typically influence the cost per hire?
Several factors, including the number of days to fill the position, location, job type, and steps involved in the recruitment process may influence your cost per hire.
number of days to fill a position
It can take weeks, if not months, to fill an open position. For example, in the UK, it takes an average of 6 to 8 weeks to fill a vacant tech role. Your cost per hire may increase if it takes longer than average to find a suitable hire for a given position as a longer recruitment process will result in more candidates leaving the process before you are able to offer/hire them and therefore increased costs of advertising, interviewing and the time lost within the business without that person. That said, it is really important to note that the time to hire statistic quoted above, is only a guide. So many other factors will influence how long the recruitment process takes such as how many stages are going to be involved and the quality of the recruitment process. Other external factors such as what state the market is in as well in relation to the level of skills required.
The cost per hire may vary based on whether you are recruiting for an entry-level, mid-level, or top-level position. For instance, in the UK, the average cost of recruiting an employee, including labour costs, is £6,125. It can go up to £19,000 for managerial roles.
The cost per hire will change based on where your business’s offices are based. If you are hiring candidates in a less-developed and established area, where property, advertising, travel, food and administration costs are lower than in a highly developed city, your cost per hire will be lower.
steps involved in recruitment
The number of steps in the recruitment process will determine your cost per hire. For instance, a longer recruitment process that involves a written test, technical interview, HR interview, skills based assessments and psychometric tests, your cost per hire would likely be higher.
reasons for tracking the cost per hire.
There are various reasons you should track the cost per hire at your workplace. Let's look at a few:
- Determining the recruitment budget: Tracking cost per hire helps you understand how high your budget should be for a specific project or a financial period.
- Optimising the recruitment process: By tracking the cost per hire, you can identify the recruitment steps that might have been increasing recruitment costs without providing much value. Removing these unnecessary steps from the recruitment process will reduce not only the time required to hire a candidate but also the recruitment costs.
- Measuring the recruitment dept’s performance: Cost per hire is the best metric to understand how effectively your recruitment department is managing resources. This enables organisations to implement appropriate strategies to improve the performance of recruitment teams.
how to reduce cost per hire.
Recruiters should aim to reduce the cost per hire without compromising on the quality of the recruitment process. Here are two key techniques to reduce the cost per hire:
automation of the recruitment process
HR teams waste a lot of time and effort doing mundane and time-consuming tasks such as sending emails, scheduling interviews, chasing hiring managers for feedback for candidates, or availability to meet with them, conversing with external recruiters, and streamlining communication with candidates. If these tasks are automated, the HR teams will be able to spend that recovered time on activities that utilise their skills and bring significant value to the recruitment process. The best solution for this is the implementation of an applicant tracking system (ATS). An ATS can help you reduce the cost per hire by streamlining every activity of your recruitment process, from organising interviews and shortlisting candidates to bringing them on board.
For every job opening, you will typically receive a lot of applications that don’t fit your current requirements. However, they can be considered for future vacancies. These extra applications help you create a strong talent pool from which you can retrieve the best candidates for future openings. An ATS enables you to create a talent pool with potential candidates by tagging their resumes based on various parameters such as experience, qualifications, certifications, and skill sets. Since the talent pool partially eliminates the need for job promotion and candidate sourcing, your recruitment costs will decrease.
reduce cost per hire with the help of hireful’s ATS.
hireful’s applicant tracking software (ATS) helps you reduce cost per hire by optimizing your hiring process. Want to learn more about how hireful you can cut down the recruitment costs? Book a demo today!