Cost per Hire is among the list of most important recruiting metrics that all HR teams should measure. Not only does this metric help organizations track and benchmark the expenses associated with the process of hiring, it also serves as an indicator of how efficient and effective their recruiting teams are at filling empty positions quickly with qualified hires.
We put together this guide to explain what Cost per Hire is about, how to calculate it, and how you can best use this metric in reports and analyses.
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What is Cost per Hire?
Cost per Hire measures the expenses associated with the process of hiring such as recruiting costs, sign-on bonuses, and onboarding costs. The majority of recruiting costs typically apply only to external hires, but some costs may be allocated to internal hires depending upon recruiting activity analysis.
They include the internal expenses of running a recruiting department and external expenses associated with hiring activities such as travel reimbursement, testing fees, external agency fees, etc.
To get a list of examples for internal and external expenses, please go to the "How to Calculate Cost per Hire" section.
Why Measure Cost per Hire
SHRM’s 2017 benchmark report showed that the cost to fill a position has risen 36% over the previous 5 years. With the increased volume of hiring activities and rising talent shortages, HR teams can expect this number to continue to increase. Measuring and tracking Cost per Hire is an excellent way for HR to ensure that hiring cost is under control and stays within the budget.
HR can also use Cost per Hire’s historical trends to project recruiting expenses for the next calendar year and create an appropriate budget. For example, if the average cost per hire is $1,000 per hire this year and HR is planning to hire 100 new employees, HR can expect to spend approximately $100,000 in recruiting cost plus room for error, inflation, and rising service fee for next-year budget.
Additionally, Cost-per Hire is a strongly linked leading indicator of the Total Cost of Workforce in terms of the time, cost, quality, and volume of hiring activity in the organization.