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.
How to Calculate Cost per Hire
Definition: the total amount of dollar resources spent on recruiting new hires.
Examples of hiring expenses:
Compensation for recruiters. This includes salary, wage, and benefits for your recruiters.
Compensation for onboarding staff. This includes salary, wage, and benefits for your onboarding staff.
Training expenses for recruiting and onboarding staff. Any training or continuing education expenses for your recruiters and onboarding staff should also be included.
Office overhead expenses. If you have a separate office for your recruiting and onboarding team, rent and utilities to operate this building or office should be included in the hiring expenses.
Agency fees. This refers to the expenses that the companies pay a recruiting agency to attract, evaluate, and screen potential candidates to fill open positions.
Advertising and marketing expenses. If your recruiting team paid to promote your job listing on LinkedIn and Monster, these expenses should be counted toward your Cost per Hire.
Sign-on bonuses. This refers to the one-time payments given when an employee begins a new job.
Travel expenses. If your recruiters travel to other cities or if you paid to fly candidates to your office locations for interviewing purposes, these expenses should also be included in Cost per Hire
Referral bonus. This is an award set in the employee referral program to motivate employees to recruit candidates from within their network.
Relocation expenses. Your organization may choose to offer a relocation package to incentivize candidates who are currently living in a different city or region to join the organization. These expenses should be included in Cost per Hire.
Onboarding expenses. This refers to any overheard expenditures that the company pays to onboard a new hire.
An extensive list of hiring expenses can be found in this SHRM’s article.
How to Use This Metric to Make Better Workforce Decisions
Example 1: Benchmark Cost per Hire against Industry Average and Peers We recommend HR teams to use this metric as an indirect indicator of their recruiting department performance in executing the organization's talent and hiring goals. SHRM’s 2017 Talent Acquisition Benchmark Report showed that the average Cost per Hire of their surveyed members was $4,425 and has consistently risen over previous years. This is well in line with Bersin by Deloitte’s earlier report of $4,000 Cost per Hire in their 2014 Talent Acquisition Factbook.
Example 2: Tracking Cost per Hire by Different Dimensions for More Insights Cost per Hire is significantly impacted by the job categories or job groups recruited. Higher level, critical or technical job roles carry substantially higher costs to hire up to a factor of 100 times the cost of lower-level administrative and other lower-level job roles. Thus, being able to track Cost per Hire by various dimensions such as job category, geographical location and business line is critical for effective recruiting management. In the same SHRM report, the average Cost per Hire for an executive position is 3 times higher than a non-executive position ($14,936 vs. $4,425). Click here to access the full report.
Example 3: Cost per Hire as an Indicator of HR Efficiency and Effectiveness Cost per Hire is driven by the types of positions that the organization is filling as well as the hiring strategy and methods. To better evaluate hiring performance, we recommend using Cost per Hire in combination with other measurements such as Voluntary Turnover Rate, Human Capital ROI Ratio, and Total Cost of Workforce (TCOW) as predictors of HR efficiency and effectiveness at filling positions quickly with high quality hires and reduced workforce costs. Below is an example of how layering Time to Fill with Retention Rate can help discover underlying recruiting issues that otherwise wouldn’t be discovered.