December 05, 2018 5:52 AM

How to Calculate Your Cost per Hire

Cost per hire; the three little words that sometimes feel like the bane of a recruiter’s life. As if finding the best possible candidates for a position wasn’t hard enough already, now you have to stick to a budget when doing so! All joking aside, your cost per hire is actually more than a method for keeping track of the money spent to fill a role. Figure it out correctly, and it could not only save the company money (obviously), but it could even help you improve the quality of your hires.

 

Why do we measure cost per hire?

The obvious answer to that question is to figure out how much it costs to fill a role. This then allows the company to budget for hiring throughout the year based on the average cost per hire figure. Simple, right?

The not-so-obvious answer is a little more complex.

You see, when we figure out cost per hire, we need to gather and analyze a great deal of data. And while our primary goal is, of course, to nail down how much it costs to hire a new employee, we can also use the collated data to understand how we are spending our recruitment budget.

Understanding this gives us an insight into which aspects of our campaign are worth investing more money into. But more importantly, it helps us identify any parts of our funnel that may be eating up cash and giving us little or nothing in return.

 

So how do we measure it?

In order to measure cost per hire accurately, you’ll need to first determine how much money you’re spending on recruitment overall.

You can break down your costs into two parts:

External recruiting costs

Your external costs include anything that is outsourced and directly related to recruitment.

  • Paid job postings on jobs boards
  • Process outsourcing
  • Marketing
  • Recruitment agency fees
  • Recruitment events
  • Background checks/drug testing 

Internal recruiting costs

These are the costs involved with any of your in-house processes.

  • Recruitment staff salary
  • Referral rewards schemes
  • Systems such as ATS

Internal costs can also include fixed costs such as office rental and utility bills. However, these are hard to calculate given that recruitment departments are often located within a company building with the rest of the workforce also making use of utilities.

You might also include the cost of holding interviews, but generally speaking, your recruitment staff salaries should cover this cost if you hold interviews on-site.

 

Time to hire

But it’s not just about costs; you also need to know the exact time frame of your hiring process. If you’re looking for accurate results, then you have to measure how long it took to fill a role from the moment your team began the process to when the employee signed on the dotted line.

 

Once you have figured out all of the above, all you need to do is follow this simple equation:

 

Cost per hire calculation

 

The equation itself is quite simple but determining those internal and external costs is where most people get bogged down.

A preemptive action you can take to help figure out these costs is to keep a record of every penny spent.

No matter how insignificant the amount may seem, it’s vital that you keep a record of every penny you spend on any recruitment costs. The best way to do this is by creating a spreadsheet with separate sections for both external and internal recruitment costs.

You can even break these down into those costs that are recurring and those that you pay up-front.

Separating your expense in this way will give you a clear picture of where you are spending the most money and which advertising channels are the most cost-effective in terms of hiring.

 

Is that all there is to it?

Yes and no.

If all you want to do is figure out your cost per hire then yes, you have achieved your goal. Or if you are still struggling with the calculation, download our FREE cost per hire calculator and you can make the whole process a lot easier.

Cost-per-Hire Calculator

But let’s face it, there’s always room for improvement especially when it comes to reducing your cost per hire.

As we mentioned earlier, it’s not just about figuring out the cost but also how you can be more cost-effective. And being cost-effective doesn’t necessarily mean reducing costs. It also means shifting your spending from ineffective methods to more successful ones.

You should also try to break down the data so that you have a clear picture of cost per hire according to the various departments and specific types of roles within the company. This allows you to be better prepared from a budget perspective when roles within a particular department become vacant.

An unexpected but most welcome benefit to being better prepared is that your accounts department will no longer gasp in disbelief at your planned ad spend for a recruitment campaign. And anything that ensures a pain-free conversation with the accounts department is ALWAYS a good thing. 

 

Do you already know your cost per hire? And if so, are you trying to figure out what you can do to bring those costs down? One way you can do so is by outsourcing some of your processes. Here at vsource we bring expertise and the latest tech to your team at a fraction of the cost of an in-house salary. Book a demo today, and we’ll show you how we can help you bring the best talent into your pipeline while also cutting down on costs. 

 

 

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