Divide all of the money you spend on hiring-related items, both
internally and externally, by the number of hires in a set period —
a year, a quarter, or even the length of a concentrated campaign.
Just be consistent.
Let’s break down the variables:
Internal recruiting costs
Internal recruiting costs include all of the in-house resources that
are dedicated to hiring, including staff, budget, and organizational
costs. This may include, but is not limited to:
In-house recruiting team salaries
Education and development costs for the hiring team
A percentage of hiring-manager salaries based on the proportion of
time spent on hiring. So if a manager devotes 10% of their time to
interviewing and hiring duties, and 90% to non-hiring related tasks,
include 10% of their salary.
Bonuses paid for
External recruiting costs
External recruiting costs include everything your company spends on
external vendors or individuals during the course of recruiting.
This may include, but is not limited to:
tracking systems (ATS), candidate relationship management
systems (CRMs), or screening and testing websites
Sourcing: agency fees, job-board postings, career fairs
Candidate vetting: background checks, drug testing
Travel expenses related to hiring
Anything spent to entice candidates: dinners, signing bonuses,
relocation expenses, etc.
Don’t include anything you spend on candidates after they become
employees, such training or accreditation, in your recruiting costs
This is the total number of internal or external hires, either full
or part time, who completed the hiring process and were hired during
a set period. You may choose to exclude contractors or freelancers,
internal transfers, or new employees brought on as a result of
mergers and acquisitions.
Benchmarks for cost per hire
Though a lower cost-per-hire number seems inherently better, that’s
not necessarily true. The metric is more nuanced than that.
that in 2017 the average amount spent per hire was $4,129. However,
the cost per hire for the average executive was more than three
times that: $14,936.
Your cost per hire is unique to your organization’s structure,
needs, and recruiting strategy. It costs more to recruit candidates
for higher-level positions, or candidates with rare or competitive
skill sets. These candidates are tougher to find, may require more
rounds of vetting and interviews, and may require more resources to
win over. The amount spent per hire is also dependent on the volume
of your hiring: The more people you hire, the lower the average will
be (as various investments are spread out over more hires).
Sometimes a higher cost per hire is better. Research by
Bersin shows that companies with the most mature recruiting
programs actually spend more on the average new employee than
companies that are still trying to figure out the recruiting
process. In order to attract the best talent, you may need to invest
more money in your recruiting efforts.
Leveraging cost per hire
Once you’ve added up all of your internal and external recruiting
line items and used them to calculate your cost per hire, use that
figure to help improve and optimize your hiring processes.
Track cost per hire over time
Track your cost per hire from quarter to quarter or year to year to
monitor how it fluctuates over time. You may see patterns: Perhaps
hiring is easier and less expensive during the first quarter versus
the fourth. Or you might see how changes in your process, your job
board subscriptions, and your hiring tactics affect how much it
costs to recruit new talent.
Analyze these changes, then adjust your hiring strategy accordingly.
Remember that an increase in cost per hire over time isn’t
necessarily a negative trajectory. It may reflect positive changes
in your hiring strategy or represent an increased company-wide
investment in recruiting.
Evaluate cost-per-hire conjunction with other metrics
Cost per hire is most useful when it is paired with other key metrics
to draw greater conclusions about recruiting strategy.
Measure it in relation to:
Source of hire and source quality: Use these metrics to drill down
on how effective different recruiting sources are at bringing in
quality candidates. Trimming out ineffective channels, or investing
more money in effective ones, may cause your cost per hire to change
as ROI increases.
Quality of Hire: How does the increase or decrease of this metric
affect the quality of prospective new hires? You may find that a
moderate increase in cost per hire leads to higher-quality
candidates that contribute more to your company over time.
Time to Hire: Time to hire is another metric that strategists
typically track and try to reduce, given that a shorter time to hire
often corresponds to a decrease in cost per hire.
Calculate cost per hire for individual departments or positions
The amount of money needed to attract a good hire can vary
dramatically, depending on the type of role you are trying to fill.
Calculate cost per hire for different positions to determine which
are the most costly to fill, and then try to figure out the
underlying reasons for variations in cost.
For example, you may learn that there are a lot of internal costs
involved in hiring a software engineer because the position requires
multiple on-site interviews and skill assessments. You may be able
to streamline the interview process and reduce costs by implementing
stricter phone screening or online skill-testing before you bring
candidates on-site for in-person assessments.
Use cost-per-hire numbers to plan ahead
Calculating your cost-per-hire numbers can help you forecast future
spending. If you know it costs an average of $5,000 to hire a new
employee, and you have to fill 20 new positions next quarter, it’s
much easier to estimate your necessary budget.
However, if you have to hire for three upper-management positions,
and you know those typically cost three times as much to fill,
adjust your expectations on upcoming budgets accordingly.