As a business owner, you may wear multiple hats, but we all know you can’t do this alone. It takes teamwork to make the dream work. Understanding cost per hire when seeking a hiring solution is key to making informed and smart decisions for your business. If you take time to calculate what it takes to add a member to your team, you may be surprised at the outcome. In this blog, you’ll learn what cost per hire means, how it is calculated, and why and how to implement it.
What Is Cost Per Hire?
The meaning is exactly what you think it is: the average amount you spent on each new hire brought into your organization. This includes everything in the recruitment staple, from recruiting hiring solutions to advertising for job openings and compensation for the hiring team.
While this concept may seem basic, understanding how it works and how it affects your business requires a deeper dive. It’s about efficiency and budgeting. Knowing your cost per hire helps you allocate resources, plan strategically, and ensure that your hiring solution is effective and cost-efficient.
How To Calculate Cost Per Hire:
The formula for cost per hire is the sum of all recruiting costs divided by the number of hires in a particular period (total internal recruiting cost + external recruiting cost) / (total number of hires in a specific time frame))
The standard method of calculating cost per hire is to break your cost into two groups: internal and external.
Internal recruiting costs are for the staff you already have or are hiring; they are costs incurred toward building a team for your organization. They are also less visible but can significantly impact your average cost per hire. They include:
- Salaries
- Training costs
- Recruitment tools and software
- Productivity loss
- Internal recruitment event
- Employee referral programs
External recruiting costs are fees related to services or external vendors your business uses to recruit. This is typically any fee related to hiring, such as:
- External agencies
- Aptitude test fees
- Applicant screening costs
- Relocation compensation
- Signing bonuses
How To Use Your Cost-Per-Hire Calculation
When implemented properly, you can use your cost-per-hire calculations to create a resource allocation guide when recruiting. Here are vital steps you should take when calculating your cost per hire:
Quantify your cost per hire: detailed data from your cost per hire helps you identify your overall costs and itemize your cost based on various spending areas. Combining this information with other metrics, such as where you are getting the most successful applicants and how many applicants you receive from each method, helps you maximize your resources.
Analyze the result: with a detailed cost per hire, you can start to compare and contrast, pinpoint where your resources are well managed or when you’re wasteful in your recruitment process.
Compare departments: If your organization has various departments, you can identify each department’s strengths and apply these strategies to other departments to boost your company’s overall productivity.
Apply what you’ve learned: After gathering data and completing your analysis, implement changes based on the results and adjust your spending to focus more on effective recruiting sources.
Take Home
When calculating your cost per hire, crunching numbers and sifting through data might be overburdening. However, getting access to such data helps you identify the strengths and weaknesses of your recruitment process so you can make smarter hiring decisions.
Want to learn more about effective hiring solutions? Reach out to the Talent Gnome team today!