What Is Cost Per Hire?

Cost per hire (CPH) is the cost incurred to bring a new employee on board.  CPH includes recruitment costs, equipment costs, administrative costs, onboarding costs and various benefits. The cost per hire can vary considerably based on the company’s size, seniority of the position, efficiency/strength of in-house capabilities and the use of different recruitment channels.

Is It Important?

It is vital to clearly estimate your company’s cost per hire. If you know this number, you are more likely to make better investment decisions, clearly define your policies regarding referral bonuses and save your company a substantial amount of money in the long term.

The CPH metric places a monetary value on the various organizational resources needed for attracting and hiring new talent. Although a company’s cost per hire may not necessarily paint a complete picture of its recruiting abilities, it is still important to calculate your CPH. A higher cost per hire is likely to attract the attention of senior management while a lower number can impress management as it can help free up financial resources for various other purposes. CPH is also important as it helps determine the amount of resources that provide an optimal outcome for your company.

How to Calculate It

Calculating your CPH may seem daunting because of the number of items involved in the calculation. However, once you have all of the components, the formula itself is quite simple.

Cost per hire is the sum of external and internal expenses divided by the number of employees hired. It is important to collect the below data accurately and consistently for each activity in order to gain the greatest insight into your hiring process.

External costs:

  • Advertisement costs
  • Agency fees
  • Campus recruitment cost and job fair
  • Any travel expenses

Internal costs:

  • Recruiter salaries
  • Referral bonuses
  • Interview costs

These are just some of the main expenses that companies incur when hiring. Be sure to include any expenses not listed above that are incurred by your organization. Your recruitment costs should reflect the total expenses needed to recruit all kinds of personnel to your organization.

Once again, the cost per hire formula is:

CPH = ( [Total Internal Costs] + [Total External Costs] ) / Number of Employees Hired

How to Minimize Your CPH

Minimizing your cost per hire is a lot like cutting spending in other parts of your business. It is important to audit your existing processes to understand where you are spending money and cut back on activities where you are not seeing a valuable return on investment. Using this cost per hire formula may not make sense for every organization; for example: a large company looking to hire a C level executive may be less worried about the cost to hire that employee because the future value they will bring outweighs the current costs. Figuring out where your company stands and what the hiring budget is will give you a good idea on where to focus when it comes to the cost of filling that open role.

Regardless of the position your company is in when it comes to cost per hire, there are numerous effective and cheap ways to maximize your hiring efforts.

  • Having an applicant tracking system in place is a great investment in your hiring process. Being able to streamline the workflows of your hiring managers and recruiters will save you both time and money when it comes to interviewing, hiring and onboarding new employees.
  • Performance reviews are another great way to improve your future hiring process. Being able to obtain a clear picture on what makes an employee successful at your company will be very helpful when it comes to knowing what to look for in a candidate during the interview process.
  • Realizing the cost of and avoiding bad hires is always something to be aware of and be improving upon in your company. With the average cost of a bad hire being two to three times the employee’s salary, having a standardized hiring process in place will help to ensure your company maximizes the benefits of staying on top of your cost per hire.

 

Related Articles

recruiting and hiring notifications in Newton

New in Newton – Real-Time Notifications

We are excited to announce that the latest release of Newton is now live! The major focus of this release is bringing real-time Notifications to Newton, allowing our users to better track and manage key recruiting activities. In addition to Notifications, we made...

Read more

Knowledge Base Login