Today’s guest blogger is Armaan Akbany, CEO and Co-Founder of Shortlyst AI. Shortlyst AI is an all-in-one AI-based outbound multi-channel sourcing platform. Shortlyst AI provides 650+ million professional database, automation and contact finder features to cater to the needs of modern recruitment. In this article, Armaan and the Shortlyst Team what cost-per-hire is and how to measure it accurately.
Cost-to-hire is a valuable metric that helps organizations across sectors understand and manage expenses related to the recruitment process. It also leads to more effective and efficient hiring.
What is cost-per-hire?
Cost-per-hire measures the total cost that an organization incurs when hiring a new employee. This includes all expenses- from advertising for the position, recruiting, interviewing, and the final onboarding. Cost-per-hire can be calculated by adding ALL the costs and overheads associated with hiring, divided by the total number of hires in a given period.
How do you calculate the cost-per-hire?
The calculation is straightforward. You need to ensure that EVERY cost is accounted for. Some generic costs you may incur in your hiring are:
- Advertising costs – The expenses towards job postings on job portals, and participation in career fairs, among others
- Agency fees – If you use a recruitment agency for hiring
- Employee referral bonuses – If you are offering incentives to employees for quality referrals
- Travel expenses – If the candidate and/or the hiring team are traveling
- Technology costs – ATS (Applicant tracking systems), CRM (Candidate Relationship Management), and other hiring tools
- Interview costs – Third-party assessment, aptitude test, rent if the interview is being conducted out-of-the-office
- Onboarding costs – Providing the candidate with training, work essentials, etc.
You can add any other overheads you may have incurred when hiring a candidate. Now calculate the total cost, and divide it by the number of hires at the particular time.
Cost-per-hire= Total cost of hiring / Total number of hires
For instance, a company is spending over $50,000 on recruitment. If the company hires ten candidates, the cost-per-hire would be $5000.
Organizations use the cost-to-hire metric to evaluate the effectiveness and efficiency of their recruitment processes. By tracking the cost of hiring a new employee, organizations can identify areas where they can reduce costs and optimize their recruitment processes.
How is cost-to-hire used in an organization?
The cost-to-hire data can be used to compare the costs of different recruitment channels (such as job boards, internet, and employee referrals) to determine which channels are the most effective at attracting qualified candidates at the lowest cost. This information helps make data-driven decisions about where to allocate recruitment resources.
Cost-to-hire can also help organizations set recruitment budgets and evaluate the Return on Investment (ROI) of their recruitment efforts. By tracking the cost of hiring, organizations can determine the cost of each employee and compare that cost to the value that the employee brings to the organization. This can help organizations determine whether their recruitment efforts are delivering a positive ROI.
Cost-to-hire is also an important metric used to evaluate a company’s overall profitability.
Cost-to-hire is an indispensable part of the following processes in a company.
- Budgeting – Knowing the cost-per-hire can help organizations allocate budgets and resources for efficient hiring
- Cost Reduction – By analyzing the components that contribute to the cost-to-hire metric, organizations can identify areas to cut down or eliminate costs
- Recruitment Evaluation – Cost-to-hire can be used as a recruitment performance metric to evaluate the effectiveness of recruitment strategies, identify areas for improvement, and optimize the hiring journey
- Benchmarking – It can be used to compare the hiring costs of similar roles or job positions within the same organization or against industry benchmarks
Cost-to-hire can thus be a significant parameter affecting most of your business decisions. Hence, experts advise carefully considering all costs- direct and allied, while calculating the metric.