Cost Per Hire is a human resources metric which calculates the average cost obtained by an organization to hire a new employee. It covers the elements that are involved in the recruitment process including advertising costs, agency fees, bonuses for employee referrals, salaries for recruiters, travel and expenses for interview purposes, background checks and other administrative costs that are directly related to hiring new employees. This metric enables organizations to measure and improve their recruiting strategies, determine the efficiency of their hiring processes and make sound decisions on how they allocate resources and funds for recruitment activities.
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Cost per hire formula
The formula to calculate the cost per hire is:Â
Where:
- Total Recruiting Costs: The sum of all costs associated with the recruiting process, including advertising expenses, recruiter salaries, referral bonuses, travel costs, technology costs, etc.
- Number of Hires: The total number of new employees hired during a specific period (e.g., monthly, quarterly, annually).
This formula provides an average cost incurred by the organization to hire a single employee. It helps in assessing the efficiency and effectiveness of the recruitment process and can be used to compare different recruitment methods or strategies.
How do you calculate Cost Per Hire?
For example calculating the cost per hire for a fictional company, ABC Corporation, for the year 2023.
Step 1:
Identify Cost Components ABC Corporation incurred the following expenses during its recruitment process:
               Advertising costs: $5,00
               Agency fees: $10,000
               Employee referral bonuses: $2,000
               Travel expenses for interviews: $3,500
               Recruiter salaries (total for the year): $120,000
               Technology costs (job boards, applicant tracking system): $8,000
               Other miscellaneous expenses: $2,500Step 2:
Gather Expense Data The HR department collects invoices, payroll records, and expense reports to obtain detailed information on each expense.
Step 3:
Summarize Expenses
       Total Recruiting Costs = $5,000 + $10,000 + $2,000 + $3,500 + $120,000 + $8,000 + $2,500 = $151,000Step 4:
Determine Number of Hires During the year 2023, ABC Corporation hired a total of 20 new employees.
Step 5:
Calculate Cost per Hire
              Cost per Hire=Number of Hires / Total Recruiting
              Costs​ Cost per Hire=$151,000/20
              Cost per Hire=$7,550
Step 6:
Analyze and Interpret Results ABC Corporation’s cost per hire for the year 2023 is $7,550. This means that, on average, the company spent $7,550 to hire each new employee during that period.
Step 7:
Continuous Monitoring and Improvement ABC Corporation can use this information to assess the efficiency of its recruitment process and identify opportunities to optimize costs.
For example, they may explore ways to reduce agency fees, streamline travel expenses, or invest in more cost-effective recruitment channels.
By following these steps and regularly monitoring the cost per hire, ABC Corporation can make informed decisions to improve its recruitment process and manage recruiting expenses effectively.
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Why does tracking Cost Per Hire matter?
- Enables the budgeting and resource allocation for hiring activities.
- Assesses the performance and the success of the recruitment processes and procedures.
- It provides an analytical tool to compare with industry benchmarks.
- Helps in analyzing the ROI of recruitment initiatives.
- Gives direction to the recruitment strategies.
- Ensures that the processes of recruitment are periodically assessed and cost-effective.
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FAQs
Tracking Cost Per Hire is important for budgeting and resource allocation, assessing recruitment efficiency, measuring return on investment, and strategizing to improve hiring practices.
Total Recruiting Costs include advertising, agency fees, employee referral bonuses, interview travel expenses, recruiter salaries, technology costs, and any other miscellaneous expenses related to recruitment.
Not necessarily. While it’s important to be cost-efficient, a very low Cost Per Hire could indicate underinvestment in recruitment, potentially leading to poor-quality hires.
Yes, investing in recruitment technology can streamline the hiring process, reduce manual work, and potentially decrease overall recruitment costs over time.