Have you ever wondered how exactly to calculate cost-per-hire?
While it may seem simple on the surface, figuring out how much you’re paying for each hire can get a little complicated.
But if you know how to calculate your cost-per-hire, you have one of the most important tools you need to earn your next raise or promotion!
Because if you’re looking to impress the C-suite, there’s no better way than slashing recruiting costs.
First things first, let’s cover why it’s so important to know how to find your cost-per-hire.
Why Knowing How to Calculate Cost-Per-Hire is So Important
One of the most important reasons why you need to know how to calculate cost-per-hire is that if you’re a recruiter or HR person, it’s how you show your value to the C-suite!
If you can show a CEO or other executive that you have significantly reduced recruiting expenses over time, there’s probably a raise or promotion in your future.
But if you can’t accurately calculate your cost-per-hire, you can’t demonstrate that you’ve lowered expenses.
Unfortunately, a lot of recruiters make mistakes or cut corners when crunching these numbers. As a result, their cost-per-hire may be HIGHER than it really is…or your savings might not be represented in the numbers.
Last but not least, an accurate CPH is key to creating realistic budgets.
You Can’t LOWER Your Cost-Per-Hire Until You Know Where You’re Starting
Another key benefit of accurately calculating this number is figuring out which hires are more expensive than others.
Once you know which types of hires are most cost-effective, you can develop a strategy to save even more money on recruiting costs – without sacrificing quality of hire.
Plus, if you don’t calculate your cost-per-hire before reducing expenses, how can you show your boss that you’ve saved 10% or more on recruiting costs?
It’s important to be able to show how much efficiency you’ve added to your department!
Click here to learn more about how to save money on recruiting.
How to Calculate Cost-Per-Hire
The basic formula for cost-per-hire is pretty simple:
Internal recruiting costs + external recruiting costs / total number of hires
You add up all your recruiting costs, then divide by the total number of hires.
In a nutshell, that’s how to calculate cost-per-hire. Seems easy – but like with most things in recruiting, the devil is in the details.
You want to make sure you’re adding up ALL your internal and external costs for accurate cost-per-hire data.
For internal costs, you’ll want to add up
- In-house talent acquisition team salaries
- Salary costs of time spent by hiring managers
- Training and development costs for your recruiting team
For hiring managers, only include this cost if they spent a considerable amount of time on the project. If they did, here’s an easy way to get a rough estimate of how much it cost your company.
Take the hiring manager’s annual salary, divide it by 2,080 (the amount of working hours in a year, provided the hiring manager works 40 hours a week), then multiply that number by the amount of hires the hiring manager spent on each hire.
Next, you’ll want to add any external costs. Here are some common external costs, but remember your company may spend more on something else:
- External agency fees
- Competency and aptitude tests
- Drug testing
- Background checks
- Posting on job boards
- Job ads
- Employer branding and recruitment marketing
- Relocation expenses
- Applicant tracking system (ATS) expenses
Employer branding and recruitment marketing includes the time your marketing team spends on your careers page, recording videos for your company’s career page, and so forth. Ask your marketing team for a good estimate of how much these endeavors cost them.
Once you’ve added up ALL your costs, divide it by the number of hires in the same period as the expenses you tracked.
Typically, you want to include all hires, internal or external, full-time or part-time, who went through your hiring process, went from temp to perm, or had fixed contracts of more than a year and are on the company’s payroll. These are all important factors to consider when looking at how to calculate cost-per-hire.
You might choose to exclude external workers like contractors or consultants, internal transfers, employees on a third-party payroll, or employees from mergers and acquisitions.
Once you’ve crunched your numbers, congratulations – you now have your average cost-per-hire for the entire company!
How to Calculate Cost-Per-Hire: Comparing Average Cost-Per-Hire
Having a company-wide cost-per-hire is a great place to start, because it gives you a benchmark. Think of it like a score card for your company’s total recruiting efforts.
But you can get even more value by calculating an average cost-per-hire for different departments, or different talent sources. It’s bigger than simply knowing how to calculate cost-per-hire.
You may be surprised at what you see when you break it down. How come marketing has such a lower cost-per-hire than operations, for example? Is there something one department does that makes hires more efficient and streamlined than another?
Do your hires from your internal database or networking events come in cheaper than others?
If you’re serious about lowering your cost-per-hire, you want to analyze your data from all different angles to figure out what’s working and what isn’t.
And if you’re looking for some expert advice and consulting, schedule a no-obligation call with us today. We can swap ideas and brainstorm based on our experience working with Fortune 500 companies and small businesses alike to help you slash recruiting costs.