How your company spends money is always important. And one of the main components of talent metrics is the cost per hire. Spending money on a new employee that doesn’t work out well is like making a bad investment. By knowing your cost per hire and its importance, you can make better, and more cost-conscious, decisions.
What Is the Cost Per Hire Formula?
Basically, the CPH is the sum of your internal and external recruiting costs, divided by the total number of hires within a given time period. This time period is usually 365 days. The calculation is represented by the following.
CPH = (Internal recruiting costs plus external recruiting costs) Divided by (Total number of hires)
How to Calculate CPH
Once you know how to calculate your cost per hire, it makes it easier to analyze the metrics. Here are a few factors to take into account for your calculations.
- Overhead costs like utilities, office rental, working space
- Recruiter salaries and talent acquisition, travel expenses, benefits, etc. These are sometimes the most costly when using your CPH calculations
- Employee referral program bonuses
- ATS, or applicant tracking system
- Hiring team development and learning budgets
- Interview expenses which have their own calculations (Number of hours times hourly salary of the hiring manager or interviewer)
Of course, external recruiting costs are a factor as well. Typically, these are less costly than internal recruiting costs. Yet they do factor into your budget and can account for quite a sizable amount. These include
- Relocation expenses
- External recruiter fees and/or agency fees
- Employer branding activities (Events, swag, etc)
- Advertising and marketing costs (Paid ads, job boards, etc)
- Background checks, if applicable
- Aptitude assessments and tests
Make sure you account for the total number of hires when calculating the CPH. This is the easy part, but always use it as a metric.
CPH Benchmarks
You need a benchmark or else your CPH data is pointless, and won’t be of use to you.
According to SHRM:
As of 2017, they estimate the average cost per hire for a non-executive is $4,425, and $14,936 for an executive. Keep these figures top of mind when calculating your CPH to see how you stack up.
The Information Is Priceless
There are numerous insights you gain by knowing your cost per hire. For example, it helps with budgeting. You gain insight into what areas to invest in. And you can identify and calculate other metrics to use in tandem with your cost per hire. This includes time spent in stage, time to hire, and proceed rate.
The Takeaway
Cost per hire is a major component of your budget. It also allows you to look at things like the increase in your number of hires based on a year-to-year basis. Your number of candidates for a job, the time and cost associated with interviews, and the sources of candidates.
About Synergy
Synergy Solutions is an executive and contract search firm focused on roles within the technology sector. If you have questions regarding this article or would like to discuss strategy on open roles at your company, please contact us and someone will get back to you within the next 24 hours.