Recruiting top talent is essential for organizations looking to drive revenue growth, but it often feels like an uphill battle as many grapple with inefficient hiring processes.
When hiring takes too long, costs can spiral out of control and throw off budgets. This inefficiency can impact an organization’s bottom line and hinder its ability to meet revenue targets and compete effectively in the market.
To combat these challenges, HR teams must focus on understanding and optimizing their cost-per-hire.
Cost-per-hire is a key metric in recruitment that quantifies the total expenses incurred to fill a job vacancy.
A high cost-per-hire can diminish overall profitability, making it crucial for HR teams to manage their recruitment expenses effectively. Fortunately, recruitment software provides a solution by streamlining processes and offering valuable insights into hiring metrics.
The cost per hire includes all the costs associated with filling a position, including advertising expenses, recruitment drive costs, recruiting software costs, relocation expenses, etc.
According to the Society for Human Resource Management (SHRM), the average cost per hire was $4,129 in 2019 but rose to $4,700 in 2023, a 14% increase.
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.
Your recruiting budget is based on the company’s discretion, but it directly affects cost-per-hire calculations. To determine an appropriate budget, a recruiter should always list each job title required on a particular team, including hiring dates and salary impact per headcount by quarter.
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.
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, if you have a referral program, consider it. Make sure to include the fees you pay as an employee bonus for introducing you to the new candidate.
of employers rate employee referral programs as the most efficient recruitment source.
Source: Forbes
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.
In addition, recruiters manage different platforms, such as 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 company's culture.
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.
Calculating the cost per hire is essential for understanding the financial impact of your recruitment efforts. This metric provides insights into the efficiency of your hiring process and helps identify areas for improvement.
Start by assessing your internal recruiting costs, which encompass organizational expenses such as recruiter salaries, employee referral bonuses, and costs associated with training and onboarding new hires.
Next, identify your external recruiting costs, which include expenses incurred outside the organization. This may consist of job board fees, staffing agency charges, and costs related to background check services or software.
Finally, tally the total number of hires made during the specified period. This number will be used to calculate your cost per hire by dividing the total recruitment costs by the number of hires.
By analyzing the total recruitment costs and dividing that by the number of hires, organizations can gain a clearer picture of their hiring expenses
Cost per hire = total recruitment costs/number of hires
Review the CPH results to identify areas where costs can be reduced, or processes can be improved, ultimately enhancing your recruitment strategy.
In this hypothetical scenario, a company is planning to hire a new marketing manager and estimating the associated costs based on typical training and onboarding expenses.
The internal costs include, but are not limited to:
The external costs include, but are not limited to:
Cost per hire = (application management costs + training costs + system onboarding costs) /number of hires
For instance, if you are hiring for 2 positions, the total cost to hire a marketing manager would be $400 + $1,100 + $800 + $450 + $3,000 = $5,750
Since the costs are spread across 2 hires, the cost per hire would be $5,750 ÷ 2 = $2,875.
These are some of the factors that contribute to a higher cost per hire.
This is the age of startups, with new companies emerging globally at an accelerated pace. Many of these startups choose to forgo the expense of a dedicated hiring team, but in the long run, this can backfire. Without in-house hiring experts, they often spend more than they would have with a professional recruitment team.
Handling recruitment internally, rather than partnering with staffing agencies, can also lead to inefficiencies. Startups allocate many of their team's working hours to non-productive tasks, such as administrative work and candidate screening, which don't directly contribute to revenue. This not only drives up the cost per hire but also hampers overall business efficiency.
When you come up with a perfect job advertisement, you need to put it on the internet for candidates to see. There are several popular job search sites that recruiters can use to find the right candidates. However, putting up an ad doesn’t come for free, and this also adds to the cost of hiring.
Indeed is one of the largest job boards. It operates on a pay-per-click or pay-per-application basis, with costs typically ranging from $0.25 to $1 per click. Glassdoor offers paid job listings starting around $200 per month, with the added benefit of an employer branding profile to attract top talent.
These platforms all add to the cost of recruitment, with the final expense depending on factors such as the posting length, the competition for talent, and the chosen platform’s pricing model. Reposting or renewing an ad will keep increasing the overall budget, making it important for companies to track expenses and optimize ad spending for the best results.
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 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.
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.
You can’t rely on traditional methods of recruiting in this age of technology, and it’s no secret that the traditional way of hiring will cost you a lot more than using modern recruiting automation tools.
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.
is the average time it takes for a well-equipped recruitment team to identify and hire a new employee
Source: Deirdre O'Donoghue
It is better to send the candidates a pre-employment testing link first rather than calling them down to your office and assessing them. This makes work easy for the recruiter and 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 trehese benefits, there's a high demand for skill assessment software in the market.
This will also help you streamline your work and allow you to develop better strategies to improve your recruiting productivity. Using efficient pre-employment screening software takes you a step closer to reducing your cost per hire and attracting the best talent.
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 that 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.
Social media networks like LinkedIn, Facebook, Twitter, Instagram, and Snapchat allow you to show your branding to the world. You can upload videos and stories of a typical day at your organization, as well as high-quality images and 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.
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 advertisements, job boards, 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, they 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.
Understanding cost per hire is essential for organizations looking to make smarter hiring decisions. By evaluating both internal and external costs, you can gain insights that help refine your recruitment strategies. After all, a well-calculated cost per hire means you’re not just throwing darts in the dark but hitting the bullseye more often!
So, while you’re busy crunching the numbers, remember: every penny saved on recruitment can go towards the office coffee machine—or a team-building trip to a tropical island (we can dream, right?). By focusing on this critical metric, you can ensure your hiring practices align with your business goals, leading to a more efficient and effective recruitment process. Now, go forth and hire wisely!
Explore employee engagement ideas to discover how to foster a motivated and productive workforce
This article was originally published in 2019. It has been updated with new information.
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.
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