What is Cost Per Hire?
Cost Per Hire refers to the total recruitment costs incurred divided by the number of hires made during a specific period. This includes both internal and external costs—things like recruiter salaries, advertising fees, assessment tools, background checks, recruitment software, onboarding materials, and even travel expenses for interviews.
Formula:
Cost Per Hire = (Internal Recruiting Costs + External Recruiting Costs) ÷ Total Number of Hires
This metric provides insight into how much your company is investing in each new employee and helps HR teams plan smarter budgets and optimise their recruitment process steps.
Why Cost Per Hire Matters
Cost Per Hire is more than just a number—it’s a reflection of the efficiency of your recruitment and selection process. Here’s why it matters:
- Budget Management: Knowing your average cost per hire helps set realistic recruitment budgets.
- Performance Benchmarking: It allows you to compare hiring efficiency across different departments, roles, or time periods.
- Process Optimisation: High CPH may signal inefficiencies in your hiring process, prompting a review of your recruitment process steps to identify bottlenecks or unnecessary spending.
- Strategic Hiring Decisions: Understanding CPH supports better decision-making about whether to handle hiring in-house or outsource it.
How to Reduce Cost Per Hire
Improving the efficiency of your recruitment and selection approach can significantly reduce costs. Here are a few strategies:
- Track Metrics Regularly: Monitor your cost per hire over time to identify trends and make data-informed decisions.
- Invest in Recruitment Technology: Tools like applicant tracking systems (ATS) can automate and speed up many parts of the recruitment process, reducing manual labor and associated costs.
- Enhance Employer Branding: A strong employer brand attracts better candidates more quickly, reducing the need for extensive advertising and lengthy interview processes.
- Use Employee Referrals: Employee referral programs often lead to quicker, cheaper, and more reliable hires.
- Streamline the Hiring Process: Review your recruitment and selection process to eliminate unnecessary stages or delays. A faster process means lower costs.
Cost Per Hire is a vital recruitment metric that offers insight into the true cost of talent acquisition. By paying attention to this figure and continually refining your recruitment and selection process, you can improve hiring efficiency and reduce unnecessary spending. Whether you’re scaling up or hiring for a few key roles, understanding your CPH will help you build a smarter, more sustainable recruitment strategy.
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