Written by Andrea Frith

Cost-per-hire is a fundamental and extremely important metric for organisations to measure and manage the cost of recruiting new employees. This tool can be used to track the cost-per-hire and identify and if necessary, reduce inefficiencies in the recruitment process.

How do you calculate cost-per-hire?

To calculate this sum, add your internal and external recruiting costs and divide by the total number of hires within a set period (normally one year)

Internal recruitment costs should include, salaries, benefits and expenses of all recruiter salaries, any referral bonuses, interview costs (time of employees involved) technologies, training budgets and finally any fixed costs – working spaces, utilities etc.

External recruitment costs should include, agency fees, advertising costs, testing, background checks etc.

Once your cost-per-hire has been calculated, it can be used in many ways to help with future recruitment costing and recruitment plans.

It can be used:

• As a strategic or planning tool to assist with future budgeting.
• To measure the success of the recruitment function within the business.
• As a benchmark to compare against industries averages or as a year-on-year performance ratio.
• To uncover and reduce inefficiencies – review recruiting expenses.

Whilst this is an extremely important and valuable tool used to manage and measure recruitment success, it may be that due to huge talent shortage globally, this cost may have to increase even though inefficiencies are being analysed. Spending more may be essential to attract talent.

Reducing spend on recruitment in a market of candidate shortage may be a short-term fix as the cost of recruiting the wrong candidate can prove far more costly (sometimes up to 3 x the salary of that employee). It is probable that at the moment investment is more important.  The fact that this is a cost metric does not always mean it should be reduced year-on-year. The Metric may indicate that more investment should be made.

 Ultimately, whilst this is important it is a delicate balance between investment and savings.