When estimating cost per hire, many inexperienced businesses focus on the most apparent expenses like recruitment team salaries. In reality, the structure of recruitment costs is much more complicated and resembles an iceberg. There is an obvious top you can see, but also many hidden recruitment and onboarding expenses that must be taken into account for accurate estimates.
Read our blog post to better understand the cost-per-hire metrics, formula, structure, and ways to optimize recruitment expenses.
What Is the Cost per Hire and Why Measure It?
Cost per hire (CPH) is a recruiting metric that allows businesses to measure costs associated with hiring a new employee. The costs include talent acquisition and recruitment team salaries, advertising charges, relocation support expenses, etc.
Understanding an average cost per hire is essential to estimate the effectiveness of your hiring and employee retention efforts. For example, if you find out that your in-house hiring managers spend too much filling senior positions, you may decide to outsource these roles to a specialized third-party recruitment agency.
How to Calculate the Cost per Hire
To calculate the recruitment cost per hire, you must divide internal and external recruiting costs by the total number of hires. Use the cost-per-hire formula below for calculations.
CPH = (Internal Recruiting Costs + External Recruiting Costs) / Total number of hires
For example, if you hire 20 people annually and spend about $50,000 on the recruitment process, the cost per hire is $2,500. Once you have the numbers, the calculation is simple, and you don’t need a specialized cost-per-hire calculator for it.
Internal Expenses Affecting Cost per Hire
Internal costs are at the top of the cost-per-hire iceberg and include everything you spend on organizing the recruitment function within your company. Simply put, these are the expenses of keeping recruitment and HR professionals that cover the following costs, among others:
- Sourcing team salaries. In many companies, talent acquisition specialists have a separate role, and they are responsible for engaging the right candidates and building a talent base. You must include their salaries in the cost-per-hire calculations.
- Recruitment team salaries. That’s the basic expense affecting costs per hire. If you have an internal recruitment team processing candidates, arranging tech interviews, and managing the hiring process, their salaries are the foundation of the cost per hire.
- Recruitment technology expenses. These are the costs associated with paid software that optimizes the hiring process, such as LinkedIn plans, applicant tracking systems, job boards, marketing tools, candidate sourcing tools, and other solutions.
External Cost-per-Hire Expenses
External expenses are often less obvious, and many companies fail to track them as recruitment costs, which may result in considerable financial losses. Here are the primary external costs per hire to consider:
- Job advertising costs. You may need to run advertising campaigns across social media platforms to find candidates for positions requiring rare expertise. Include everything you spend on them in cost-per-hire calculations.
- Background checks. These are expenses on credit, criminal, and educational checks, verifying an immigration status, drug testing, and checking references.
- Employer branding activities. If you want to land experienced and quality candidates, you must invest in making your company an attractive place to work. It’s an expensive ongoing activity that may additionally increase the cost per hire.
- Relocation support expenses. When relocating a candidate, your HR professionals may need to cover temporary housing, transportation, visas, etc. Keep these expenses in mind when calculating the cost of hire.
- Employee referral expenses. Companies with an incentive that encourages employee referrals should add it as an additional external expense.
Main expenses to mind when calculating the cost per hire
5 Ways to Optimize the Cost per Hire
Suppose you have calculated the hiring process expenses, and it turns out they are eating up a large share of your budget. If you are now looking for ways to reduce the cost per hire, our expert recommendations should help.
#1. Focus on quality
Don’t rush to hire someone if you doubt whether they are the right person for the position. If they resign several months later, fail to pass the trial period, or won’t be able to do the job as expected, you will have to do the hiring again. It means increased overall recruitment expenses and the cost per hire.
We recommend thoroughly checking the candidate’s experience, including soft skills, before sending an offer.
#2. Build a recruitment funnel
A hiring funnel is a framework that makes the recruitment process more organized and helps you measure the number of potential candidates you gain and lose at each stage. Similar to the sales & marketing funnel, it includes a sequence of stages that starts with a large pool of candidates and ends with one or several people you successfully hire.
You can benefit from an efficient recruitment funnel not only when you are about to hire someone. It must keep working and building your candidate base continuously, enabling you to find the right candidate quickly whenever needed.
Learn more about how a tech hiring funnel should look like
#3. Implement employee referral programs
Incentives are a very popular way to improve your hiring process, with 82% of employers rating employee referrals as the source that generates the best ROI in recruiting. Referral programs allow businesses to attract candidates with suitable experience, skills, and values much faster. They also cut recruitment costs as you get an interested candidate without the need to browse and reach dozens of random people.
#4. Track hiring efficiency
Besides the direct cost of hire, you should measure other metrics that affect your recruitment expenses. Consider measuring time to hire, quality of hire, offer acceptance rate, and retention rate, among other metrics related to new hires. These indicators can help you detect weaknesses in your HR processes and fix them to optimize the cost per hire. If, for example, you find out that filling a position takes too much time, it will indirectly inflate the cost of hire as your recruiters spend excessive time on their duties.
#5. Consider outsourcing to a third-party recruitment agency
If you feel like you lack the experience, skills, or resources to set up effective internal hiring, use the help of professional third-party recruiters. Tech recruitment agencies like Sunvery have decades of experience, a large talent base, and established hiring funnels to provide you with suitable candidates in a couple of days. Besides, working together with a third-party recruitment provider, you won’t have to keep an internal team of recruiters, which considerably cuts expenses.
Predictable Hiring Costs and Outcomes with Sunvery
Sunvery is a tech recruitment and staffing company that can provide you with predictable hiring outcomes within the specified deadlines. Just tell us how many specialists you need and define the requirements for their skills to get a detailed hiring plan with budgets and estimates. Or – let us know the desired budgets and tech specialIzations, and we’ll get back to you with the recommended hiring locations to fit your needs. Our average time to hire is 25 days, with 2 days to the first interviews.
We can find suitable candidates in your location or help set up remote cooperation depending on your needs. Contact us to get a quote.