One of the key metrics for evaluating the efficiency of your hiring process is cost-per-hire (or CPH). It:

• Helps you identify areas where you need to improve, and
• Guides you in setting a budget for recruitment efforts.

Because no matter the size of your company or industry, you’re always limited by your funds.

Implementing headhunting strategies without proper consideration of your budget is never a good idea. You’ll likely end up spending more than you should.

The worst case scenario is that you waste money on hiring techniques that don’t even work so you get sub-par candidates. This will force you to use up additional resources to find better prospects.

Why Is It Important to Compute Cost-Per-Hire?

While your CPH may not tell the whole story of your recruitment capabilities, it’s not a metric you can afford to overlook either. Here are some of the advantages of having a solid estimate of your CPH.

It enables you to create industry benchmarks against peers

You can assess what the standards are in your niche. Thus, you have an idea what you should be aiming for and what’s possible to achieve. There are plenty of talent benchmark reports for you to look at online.

Interestingly, the average time to fill a position normally gets shortened as candidates get hired more quickly.

It allows you to compare costs from different sources

Through this information, you can determine which outlets are most effective for posting job ads. It might be a niche job board, a major job site, a social network or a job aggregator. If you’d like to get accurate localised results, take advantage of embedded features on applicant tracking systems.

It teaches you to take a unique approach per category

Many of the best employees are already working for someone else. To persuade them to choose you instead, it’s necessary to calculate costs according to:

• Position
• Department
• Leadership level
• Source of hire.

You’ll notice that roles in IT, for instance, are in greater demand than those in finance and adjust accordingly.

Though it’s time-consuming to compute CPH, it’s worthwhile as it provides insight on where you’re spending money inefficiently, where the budget is going and where you can optimise expenses.

How Do You Compute Cost Per Hire?

Determining the average cost-per-hire is actually simpler than you think. First, you need to add up the internal costs with the external. Then, you must divide the sum to the number of people you’ve hired in a specific period of time.

Cost Per Hire = (Internal Recruiting Costs + External Recruiting Costs) / Total Number of Hires in a Time Period

What Are Internal Costs?

These are expenses that are related to in-house staff and organisational activities. These include but are not limited to:

• Recruitment staff salaries
• Employee referral rewards or bonuses
• Talent acquisition system costs
• Interview costs (number of hours spent in the interview times the hourly salary of the hiring staff)
• Government compliance fees
• Career development and learning costs of your team
• Resource allocation for different teams
• Fixed costs (applicant tracking systems, computers, etc.)

In other words, these refer to the money spent inside your company during the headhunting process.

What Are External Costs?

In contrast, these take into consideration all of the technology, tools and teams that you outsource to find suitable candidates. Counted under external vendors and out-of-office costs are:

• Staffing agency fees
• Advertising or marketing costs (e.g. job boards and social media)
• Virtual career fair or event fees
• Background checks and assessments
• Employer branding activities
• Sign-in bonuses or incentives
• Travel expenses (e.g. co-working spaces or meeting rooms)
• Job sourcing

As you should with internal costs, look at each expense carefully to determine what little recruitment activities can turn out with a large amount over time.

Important Note About Total Hires

The total number of hires must include all employees, regardless if they work part-time or full-time, or if they’re permanent or temporary. Let’s say you’ve signed up someone to work on a freelance basis for your blog. They’re also counted as a hire even if they have no fixed amount of hours per week or per day. This is because you are also expending resources on recruiting them.

What to Do With Cost-Per-Hire Data

Now that you know how to compute your CPH, you can optimise your recruitment process. Consider examining the data regularly so you can make better strategic decisions with your money.

Don’t forget to analyse different benchmarks and departments while you are at it. Also, compare your CPH with other metrics such as quality of hire and time to fill so you can correlate them.

When you partner with Remote Workmate to fill in vacant positions, we can help ensure that you stay within your hiring budget while endorsing only qualified candidates. We provide a place where you can post about jobs available; we’ll conduct the initial screening for you as well.

Although we cannot compute the average cost-per-hire for you, we can assist you in other aspects of your recruitment process as a reliable offshore staffing agency.