How to Calculate Your Cost-per-Hire — and Why You Should

Posted by Ryan Frazier

Most recruiters know that talent acquisition can be an expensive process, but do you know exactly how much it’s costing your company? If you’re not already tracking talent analytics, the answer may surprise you… and not in a good way. Here’s why: According to recent SHRM and Glassdoor research, the average employer spends around $4,000 and 24 days to hire a new employee. And that’s just the overall benchmark across industries. To figure out your recruiting costs — and how they stack up to other companies within your industry — it’s important to understand everything that goes into calculating those costs and what you can do to streamline those factors for your company. 

Here’s how to do it — and why you should make it a priority for your business. 

What cost-per-hire means

As one of the more technical aspects of recruiting, calculating cost-per-hire can definitely feel a bit intimidating at first. But the factors that go into it are actually pretty straightforward. Taking into account everything from job sourcing to background checks to in-house recruiting staff (and more), determining cost-per-hire is a great way to better understand your recruiting process and how it fits into the larger framework of your company. And here’s the best part: once you’ve figured out how to track this metric, you can easily adjust the calculation if and when your recruiting process changes.

How to calculate cost-per-hire

Before you start plugging numbers into a formula, it’s important to make a comprehensive list of all the factors that will go into your calculation. Start with a list of external recruiting costs such as recruitment technology, job boards and marketing. Then, create a similar list of internal recruiting costs such as full and part-time recruiters, referral programs and talent management systems. Once you know the factors that should go into your calculation, it’s time to figure out how to plug in the right numbers. We like this easy and comprehensive formula developed by Glassdoor, which takes all of these elements into account and shows you how to bring them together. 

Screen Shot 2019-07-22 at 10.03.52 AM

If that looks confusing, don’t worry — we can help you break it down. Here’s what it actually means: To calculate your cost-per-hire, you first need to calculate the total costs you’ve spent on both internal and external recruiting efforts. Once you have that sum, divide it by the number of hires you’ve made in a specific time period (say one month) to determine the final number. Voila! Not that bad, right? And once you have your company-wide cost, you can use it to calculate across different departments, and help you benchmark against other companies.  

Using cost-per-hire to streamline your recruiting process 

With the hard part done, you can now use this metric to help you figure out how to refine your recruiting process and keep costs at a minimum. A good way to do this is by looking at all of the internal and external costs that go into each hire. Then, figure out which costs can be consolidated or removed altogether. For example, if you’re using both an internal recruiter and a recruitment agency, you can have each of them focus on only filling specific types of roles. This will eliminate duplication of efforts and ensure that each recruiter is able to specialize in certain kinds of hires. Or, if you’re using multiple solutions to manage candidate communication and interview scheduling, switching to an all-inclusive candidate engagement platform can help you streamline costs and make your process much smoother.

With some of the rapid shifts happening in the talent acquisition landscape over the past few years — including the use of AI and video interviews — having deep insights into some of the key factors and costs impacting your business can make a big difference to both your process and your bottom line. By using this formula to track your hiring costs, you can ensure that your process is as smooth and cost efficient as possible. 

Want to improve your recruiting strategy? Learn the three questions to ask when assessing culture fit and how borrowing elements from your recruiting strategy can help you boost employee engagement.

Looking for more great content? Subscribe today!