How To Calculate Cost Per Hire To Optimize Recruiting
Fairly or not, recruiting departments face constant pressure to reduce cost per hire. Breaking down your cost per hire is an important strategic tool to assess the cost effectiveness and efficiency of your recruiting process, identify areas for improvement, and help guide your recruiting budget.
Here’s an overview of how to calculate your cost per hire to optimize your recruiting process.
Cost per hire formula
SHRM’s formula for cost per hire is the sum of all recruiting costs divided by the number of hires in a specific time period.
- (total internal recruiting costs + external recruiting costs) / (total # of hires in a given time frame)
Internal recruiting costs
Internal recruiting costs are expenses related to internal staff and organizational costs of the recruitment function. These include:
- Recruiter salaries
- Employee referral bonuses
- Interview costs (# of hours X hourly salary of interviewer or hiring manager)
- Fixed costs such as physical infrastructure (e.g., office rental)
External recruiting costs
External recruiting costs are expenses related to external vendors or out-of-office costs including:
- Agency fees
- Advertising costs (e.g., job boards)
- Technology costs (e.g., recruiting software)
- Career fair / recruiting event costs
External recruiting costs can also include candidate-related costs such as:
- Travel costs
- Relocation costs
- Signing bonuses
Cost per hire by category
To better understand and compare cost per hire at your company, you can calculate specific cost metrics. There are many categories by which you can calculate cost including:
- Job position
- Leadership level
- Source of hire
For example, cost per hire for roles in software development may be higher than in finance due to the higher demand for developers compared to finance professionals.
Cost per hire benchmarks
How do you know if your cost per hire is high, low, or average? You can compare your costs against available benchmarks.
- $4129: according to SHRM
- $4000: according to Bersin
- $3400: cost for an entry-level employee
- 16% of annual salary: cost for a 30K or less job
- 20% of annual salary: cost for a 75K or more job
Recruiting channel source of hire benchmarks
- $1248: Major job board
- $803: Niche job site
- $513: Job aggregator
- $616: Social network
- $285: Glassdoor
Best practices for cost of hire data
Cost of hire data can be invaluable to help optimize your recruiting process including process improvement and strategic planning and investment.
1. Examine your cost per hire regularly
You should be calculating your costs regularly to assess the impact of a process improvement, a technology/automation project, or a recruiting event.
An increase in costs isn’t necessarily negative. For example, it may increase because you’ve invested in increasing recruiting headcount to handle higher hiring volume.
2. Analyze your cost by department and position
Compare your cost per hire data by department and position to help identify areas for process improvement and lower costs, if possible. For example, if interviewing costs for leadership positions are higher because of multiple interviews, discuss whether you can reduce the number of interviews with no ill effects.
3. Calculate your cost by source of hire
Understand which sources of hire are the most cost effective. Tracking source of hire can be done manually or in your ATS.
4. Assess your cost in the context of other important recruiting metrics
Cost per hire data should be examined it in the context of other recruiting metrics that are important to you such as time to fill and quality of hire.
If possible, you should analyze their correlations with each other. For example, does cost decrease as time to fill decrease? What happens to quality of hire as cost decreases?
5. Use cost per hire data for strategic planning
As a measure of the recruiting function’s performance, cost per hire is an important factor in strategic planning and budgeting to determine future investments in recruiting tools and increasing company headcount.