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What Is Cost Per Hire? (+How Recruiters Can Reduce It)

Nivedita Joshi
Nivedita Joshi  |  December 4, 2019

Organizations are looking to hire the best employees to scale success. 

To do this, they have to set a budget aside. This specific budget is spent on acquiring candidates, and in layman’s terms is known as cost per hire.

What is cost per hire?

Cost per hire is an essential factor in any recruiting strategy. It measures how much the company spent to fill an open job position. Cost per hire includes all the costs associated with filling a position, from advertising expenses, recruitment drive costs, recruiting software cost, relocation expenses, etc.

The cost-per-hire metric is tracked so that the recruiters can compare annual cost per hire over the years to understand any significant change or hike in the spending. Forty-one percent of hiring departments report they calculate cost-per-hire metrics regularly. Tracking helps you to prove the ROI of your recruiting efforts and also forecast future expenses.

However, the hiring cost can increase or decrease based on the structure, growth, and recruiting tactics of your organization.  

Cost-per-hire was a topic of debate until HR leaders created a standard formula for it in 2012. The Society of Human Resource Management (SHRM) and the American National Standard Institute (ANSI) came together and came up with the below formula:

cph equation

Cost and number of hires refer to an annual or monthly measurement period.

Types of recruiting costs

Every organization usually has two recruitment processes: internal recruitment and external recruitment.

Internal recruiting costs can be defined as organizational costs and internal expenses, like the recruiters’ salaries and employee referral bonuses. External recruiting costs are what you pay outside of your outside the organization, like job board fees, staffing company fees, and expenses related to background check software or services.

See the Highest-Rated Background Check Software, Free →

How to calculate your recruiting budget

Before you start recruiting, you’ll need to know how much money your company can afford to spend on recruiting costs. Follow these steps to calculate an appropriate budget.

1. Determine your costs

Your recruiting budget is based on the company’s discretion, but it directly affects cost per hire calculations. A recruiter should always list each job title that is required in a particular team and including hiring dates and salary impact per headcount by quarter to determine an apt budget. 

Make sure to add 30% to the total to account for benefits, taxes, travel and expenses, and so on. Also, don’t forget to include part-time employees or contractors that you plan to add in the particular year. 

2. Estimate the number of hires

Estimating the number of hires expected in a year helps to ease your budget structure. Break down the number of expected hires into quarterly segments to see what budget needs to be spent on each channel while recruiting. 

Also, make sure you consider the referral bonus program if you have one. In some organizations, 50% or more hires come via referrals. Make sure to include in the fees you pay as a referral bonus to the employees for introducing you to the new candidate.  

3. Track cost of events and systems fees

Staging events is time-consuming and not cheap at all. It doesn’t matter whether you are a big organization or not; you will end up spending a significant amount of money on career fairs or meet-ups for candidates to create awareness about your brand. These expenses should also be added to the budget.

Other than this, a recruiter manages different platforms like the CRM system and social media accounts, which they use for posting jobs online, revamping career sites, and adding events on the website to reflect the culture of the company. You will need to include expenses involved in each system to keep track of your cost-per-hire spending. Remember to add the cost of any platform that influences recruitment directly or indirectly.

Why does cost per hire increase?

These are some of the factors that contribute to a higher cost per hire.

1. Staffing agencies (or lack thereof)

This is the age of startups, and they are booming across the globe. Such companies don’t want to spend on a dedicated hiring team. However, in the long run, this doesn’t prove to be beneficial as the organization ends up paying much more than they would pay an in-house hiring expert.

In some organizations, business owners like to recruit candidates themselves rather than using staffing agencies, which results in spending around 40% of their working hours on non-productive tasks, not generating income. Thus, increasing the cost per hire.

Find the best Staffing Agencies for 2019 →

2. Job board fees 

When you come up with a perfect job advertisement, you need to put it on the internet for candidates to see. However, putting up an ad doesn’t come for free, and this also adds to the cost of hiring.

Let’s look at an example. 

LinkedIn is currently the most popular platform to hunt for a job. They have a fixed price of $119.95 per month for recruiters. LinkedIn has changed to the pay-per-click model, and as your budget decreases, your ads get pushed down. Therefore, if a recruiter is looking for a candidate, they need to boost their ad again and again until the position is filled.

Monster is another beloved place for both recruiters and job seekers. But, it follows the traditional payment model, i.e, $375 for 60 days and $395 for 90 days for one position. If the recruiter is looking to fill multiple jobs at once, they might also end up getting a discount.

It costs around $100-300 per month to advertise for a single job role on the major job boards out there. If you end up renewing your posting, this increases the recruiting budget.

See the Easiest-to-Use Job Boards Software →

3. Career events 

You can’t always rely on the internet, sometimes you get out there and meet the best possible candidates in person. There are numerous campus drives and career fairs where employers try to scan for prospective employees.

The college career fair is a classic example. These types of events are visited by 75% of employers according to Glassdoor. And, due to events like this, 57% of all hires are college freshers. 

The cost of participating in an event like this ranges from $125-225, excluding other expenses like marketing, accommodation, travel, etc. Therefore, you can imagine visiting just a handful of these career fairs can end up costing a lot.

How can you make your recruitment process more economical?

All these recruiting efforts have costs that add up. Here’s how you can cut back on your expenses to make your process more economical.

1. Automate your recruitment process

You can’t rely on traditional methods of recruiting in this age of technology, and it’s no secret traditional way of hiring will cost you a lot more than the modern recruiting automation techniques.

Interviewing candidates and screening resumes manually consumes substantial time and labor costs. Automating specific recruitment processes will not only save money and time but will also remove the chances of human error. 

See the Easiest-to-Use Recruiting Automation Software →

It is better to send the candidates a pre-employment testing link first rather than calling them down to your office and assessing them. It makes work easy for the recruiter as well as the candidate. The result of the pre-employment test will help you decide which candidates are deserving of an in-person interview, helping you conserve your resources. Due to these benefits, there's a high demand for skill assessment software in the market.

This will also help you in streamlining your work and allow you time to come up with better strategies to improve your recruiting productivity. Using efficient pre-employment testing software takes you a step closer in reducing your cost per hire and attracting the best talent out there. 

2. Design a candidate persona

It is good to know exactly what you are looking for in a candidate. What are your expectations regarding their background and what experience are you looking for in the candidate.

To create your candidate persona, use a mix of a focus group, set up meetings with the hiring managers, and use surveys. This will help you paint a picture of the candidate you want, and you won’t exhaust your resources on unwanted candidates. Another benefit of creating a candidate persona is, your ideal candidate will most likely have a long-term relationship with your organization resulting in retention.

As a recruiter, ask yourself questions regarding relevant skills, background, and personality traits you are looking for in the candidate while keeping in mind the culture of the company.

3. Leverage social media

Social media channels like LinkedIn, Facebook, Twitter, Instagram, and Snapchat allow you to show your branding to the world. You can upload videos and stories of what a typical day at your organization looks like, and also upload good quality images and add links to your blog posts to provide valuable information about your organization and its culture.

Social media gives you the freedom to find talent through targeted ads to job seekers who are aware of your organization but haven't applied for any roles at your company.

4. Build talent communities

A highly engaged talent community is the secret weapon of any recruiter. It essentially is a  highly qualified army of candidates willing to work at your organization. Whenever there's an available position at your organization, you can source candidates from this talent community. This will save you advertisement, job board, and other expenses related to finding a suitable candidate. 

These communities typically consist of previous applicants and interviewees with whom as a recruiter you’ve already interacted. They might not be fit for a specific job role at that moment; however, can be considered for future positions. You can also source talent by providing a form on your careers page that allows interested job seekers to make general inquiries about job opportunities. This way, you don’t have to seek the candidate; instead, they seek you.

Hire smarter, not harder 

These four tactics, along with the smart use of recruiting technology, will help you reduce your cost per hire while still hiring some of the best talents out there.

Remember to track hiring costs and compare cost per hire year over year to see how efficient your hiring process is, and how you can save on expenses.

See the Easiest-to-Use Recruiting Software →

Nivedita Joshi
Author

Nivedita Joshi

Nivedita is a Content Writer at Interview Mocha. She strives to make her content as relatable and informative as possible for the readers. On a personal front, her knack for trying out different cuisines and exotic food is unrivaled. In her free time, she writes quatrains on her Instagram page.