Cost per Hire
If you're in the world of recruiting, you've probably heard of cost per hire - but what does it really mean, and why should you care? Simply put, cost per hire is the average amount of money your company spends to bring a new employee on board.
This metric is a game-changer when it comes to budgeting and planning for your recruitment efforts. Let’s say your company plans to hire 100 people in the next year, and your cost per hire is €5,000. That means you can estimate a total spend of €500,000 on recruiting. Tracking this number over time also helps identify trends and potential areas for cost optimization.
How do you calculate cost per hire?
The Society of Human Resource Management (SHRM) has a simple formula for calculating cost per hire:
(Total Internal Recruiting Costs + Total External Recruiting Costs) / Total Number of Hires in a Given Time Frame
Breaking this down further, let’s look at the two main types of recruiting costs:
Internal recruiting costs
These are the expenses tied to in-house hiring efforts, including:
- Salaries of in-house recruiters
- Employee referral bonuses
- Marketing and advertising for job postings on the company website
- Interview costs (hours spent interviewing multiplied by hourly wages of hiring managers)
- Fixed costs such as office space and recruitment-related infrastructure
External recruiting costs
These expenses come from outside vendors or other external hiring-related costs, such as:
- Fees paid to recruitment agencies
- Background checks and pre-employment assessments
- Job advertising on third-party platforms
- Technology costs (e.g., recruiting software and applicant tracking systems)
- Career fairs and recruitment event costs
Why tracking cost per hire matters
Beyond just keeping your budget in check, tracking cost per hire helps benchmark performance against industry standards. It allows you to see if your recruitment spending is in line with competitors or if adjustments are needed to attract top talent efficiently.
According to SHRM, the average cost per hire is $4,700. However, many companies estimate that the true cost can be three to four times the position's salary. This means cost per hire varies significantly based on factors such as industry, job level, and market demand.
Final thoughts
Understanding and tracking your cost per hire isn’t just about crunching numbers - it’s about making strategic hiring decisions that impact your company's bottom line. By continuously monitoring this metric, you can make smarter, more efficient recruiting choices and ensure your team is investing wisely in top talent.
So, how does your company’s cost per hire compare to the industry average? It might be time for a deep dive into your recruitment spend!