Judging by the name of this metric, Cost per Hire refers to the amount of money your company spends in order to hire a person. On its own, this metric offers insight only on how much you spend per individual hired – but when paired with the Recruiting Budget metric, you can determine how much your company affords to spend on hiring new people in a year, for example.
Of course, the cost per hire and recruiting budget can be compared over several months or years so that you can notice any changes in your company’s recruitment process and the way the budget is being spent.
The Cost per Hire Formula
When calculating the Cost per Hire, you first have to decide the time period for which you want it calculated. Then, all you have to do is sum up the internal and external recruiting costs and divide the final results by the total number of hires in the given time period.
As you have noticed, there are two other things you have to take into account when calculating the Cost per Hire – namely, the internal and external recruiting costs. Let’s see what these actually mean.
- Internal Recruiting Costs – these refer to the internal expenses and organizational costs of your company; these can include the money you spend on the referral program and the salaries of your recruiters.
- External Recruiting Costs – as the name suggests, these costs refer to everything that your company pays outside when it comes to recruiting; these can include costs towards background checking services, agency fees, job board fees, advertising, and such.
What is an Optimal Cost per Hire?
According to a study conducted by the Society of Human Resource Management, the average Cost Per Hire is just a little over $4,000 – this is not a general average and applies only to the companies that were part of the survey the Society conducted.
Naturally, we can’t use this average for all the companies – there are certain factors that influence the Cost per Hire. For example, the hiring volume is quite important.
You might believe otherwise, but if the number of people you hire is higher and higher, the Cost Per Hire you get lower and lower – this is due to the fact that certain fixed hiring costs can actually be spread out over a significant number of hires.
Moreover, it also depends on the industry – for example, when it comes to the IT industry, the Time to Fill is much lower and, therefore, the Cost per Hire of an IT company will be much lower.
On the other hand, when it comes to engineering, for example, or roles that have a longer Time to Fill, the Cost Per Hire will increase as the company must continuously look for candidates and interview them.
The Bottom Line
As we mentioned at the beginning of our article, the Cost Per Hire is tightly connected to the Recruiting Budget – coming up with the latter can help you determine which the Cost Per Hire should be.
Furthermore, calculating the Cost Per Hire will also offer you information on whether you have to decrease or increase the costs that go into hiring new personnel.