At Applicantz, we know that hiring metrics are essential for any successful recruitment strategy. Cost-per-hire is one of the most important metrics to track.
Understanding and optimizing your cost-per-hire can lead to significant improvements in your recruitment process and budget allocation. In this post, we’ll explore why you should track cost-per-hire and provide practical steps to implement it effectively.
What Is Cost-per-Hire?
Definition and Significance
Cost-per-hire is a fundamental recruitment metric that measures the costs associated with the process of hiring new employees. These include expenses such as sourcing and attracting candidates, as well as the costs involved in the selection and onboarding processes. Tracking this metric can revolutionize hiring strategies and provide valuable insights into recruitment efficiency.
Components of Cost-per-Hire
The cost-per-hire calculation typically includes both internal and external expenses:
- Internal costs:
- Recruiter salaries
- Employee referral bonuses
- Time spent by hiring managers on interviews
- External costs:
- Job board fees
- Background check expenses
- Agency fees (if applicable)
Financial Implications
Understanding your cost-per-hire is essential for effective budget planning and resource allocation. However, the average cost per new hire can fluctuate significantly based on factors such as industry, company size, and position level.
Influence on Recruitment Strategy
Monitoring cost-per-hire enables you to identify the most cost-effective recruitment channels. For instance, you might discover that employee referrals yield quality hires at a lower cost compared to job board postings. This insight allows you to allocate your recruitment budget more strategically.
Additionally, analysis of cost-per-hire data helps pinpoint inefficiencies in your hiring process. Extended time-to-fill periods often correlate with higher costs, so streamlining your process can result in substantial savings. Some organizations have reported significant reductions in their hiring costs through optimization of their recruitment strategies.
Technological Advancements
Modern applicant tracking systems and recruitment software play a pivotal role in accurately calculating and monitoring cost-per-hire. These tools automate data collection and provide real-time insights, facilitating consistent tracking of this metric. While numerous options exist, it’s important to choose a comprehensive solution that not only tracks cost-per-hire but also optimizes the entire recruitment process (Applicantz stands out as a top choice in this regard).
As we explore the benefits of tracking cost-per-hire in the next section, you’ll gain a deeper understanding of how this metric can transform your recruitment strategy and drive better hiring decisions.
Why Track Cost-per-Hire?
Optimize Budget Allocation
Tracking cost-per-hire provides a clear picture of your recruitment budget allocation. This insight allows you to direct resources more effectively. For example, if employee referrals consistently yield high-quality candidates at a lower cost, you might increase investment in your referral program. On the flip side, if expensive job board postings don’t deliver results, you can redirect those funds to more productive channels.
Make Data-Driven Decisions
Cost-per-hire data empowers you to make informed decisions about your recruitment strategies. Instead of relying on gut feelings or outdated methods, you can use concrete data to guide your choices. For instance, if your data shows that video interviews significantly reduce travel costs without impacting candidate quality, you can implement this approach more broadly with confidence.
Identify and Eliminate Inefficiencies
Cost-per-hire tracking often reveals hidden inefficiencies in your hiring process. Long interview cycles, redundant assessments, or excessive use of external agencies can all inflate costs unnecessarily. Identifying these pain points allows you to streamline your process, potentially cutting weeks off your time-to-hire and thousands of dollars per position.
The Society for Human Resource Management (SHRM) reports that average cost per hire has jumped from $4,129 in 2019 to $4,700 in 2023-a 14% increase.
Benchmark Against Industry Standards
Tracking cost-per-hire allows you to compare your recruitment performance against industry benchmarks. This comparison can highlight areas where you excel and areas that need improvement. For example, if your cost-per-hire for entry-level positions is significantly higher than the industry average, it might indicate a need to reassess your sourcing strategies or streamline your selection process.
Improve Overall Recruitment ROI
Understanding your cost-per-hire helps you calculate the return on investment (ROI) of your recruitment efforts. This calculation becomes particularly valuable when you pair it with quality-of-hire metrics. Key metrics to use include monetary values of new hires and costs to measure when determining your cost per hire (CPH).
While tracking cost-per-hire offers numerous benefits, it’s just one piece of the recruitment puzzle. Comprehensive hiring solutions (with Applicantz standing out as a top choice) not only track this metric but also provide insights across the entire recruitment lifecycle. These tools can transform cost-per-hire data into actionable strategies that elevate your entire hiring process. In the next section, we’ll explore how to calculate and track this essential metric effectively.
How to Calculate and Track Cost-per-Hire
The Calculation Process
To calculate cost-per-hire, sum all internal and external recruitment expenses and divide by the total number of hires in a given period. Internal costs include recruiter salaries, employee referral bonuses, and hiring manager time. External costs cover job board fees, agency fees, and background checks.
If your total recruiting costs for a quarter were $50,000 and you hired 10 people, your cost-per-hire would be $5,000. This figure provides a baseline for future comparisons and helps identify areas for improvement.
Leveraging Technology
Manual calculations can be time-consuming and error-prone. Modern applicant tracking systems (ATS) automate this process, providing real-time cost-per-hire data. These systems integrate with your existing HR tools, pulling in relevant financial data and hire counts automatically.
While many ATS options exist, it’s important to choose one that offers comprehensive recruitment features beyond just cost tracking. Workable and Pinpoint ATS are among the top choices, offering features like candidate sourcing suites, AI recruiting, and automation.
Avoiding Common Pitfalls
One frequent mistake is to overlook hidden costs. Don’t forget to include expenses like travel for candidates, time spent by non-HR staff in interviews, and onboarding costs. Another pitfall is to use inconsistent time periods for calculation, which can skew results.
It’s also important to avoid the temptation to cut costs indiscriminately based on your cost-per-hire metric. The goal is to optimize recruitment, not just reduce spending. Sometimes, investing more in certain areas can lead to better hires and lower long-term costs.
Best Practices for Accuracy
Consistency is key in tracking cost-per-hire. Establish a clear definition of what constitutes a ‘hire’ in your organization. Does it include internal transfers? Temporary to permanent conversions? Be specific and stick to your definition.
Regular audits of your cost data ensure accuracy. Quarterly reviews can help catch discrepancies and adjust your tracking process as needed. It’s also beneficial to break down cost-per-hire by department or role type, as these can vary significantly.
Don’t view cost-per-hire in isolation. Pair it with quality-of-hire metrics to get a full picture of your recruitment ROI. A slightly higher cost-per-hire might be justified if it results in better-performing, longer-tenured employees.
Final Thoughts
Cost-per-hire tracking transforms recruitment strategies, enabling data-driven decisions and resource optimization. Organizations must define hires clearly, include all relevant costs, and use technology to automate data collection and analysis. This approach leads to improved recruitment ROI and a more efficient hiring process.
Comprehensive hiring metrics provide a full view of recruitment performance. Cost-per-hire, when combined with other key indicators, offers valuable insights for long-term talent acquisition success. Organizations should avoid indiscriminate cost-cutting and focus on creating a balanced, effective hiring strategy.
Applicantz offers an all-in-one hiring software that streamlines the entire recruitment process. With features like AI-powered job posting and automated scheduling, it helps organizations attract and hire top talent effectively. Companies that prioritize cost-per-hire tracking and use the right tools will see their recruitment strategies transform.
