Cost Per Hire
How to Calculate Cost Per Hire
Every company wants to hire the best candidates for their open positions, but how much does it really cost to hire someone? We're going to break down how you can calculate your own cost per hire so you can get an accurate picture of how much each new employee costs your business.
Step 1: Calculate the cost of hiring for each individual role.
To calculate the cost of hiring for each individual role, you'll need to include all types of expenses involved in making a hire. This includes headhunting fees and training costs. Internal and external hiring costs can add up fast — and if you're not careful, they’ll start eating away at your revenue.
The first step is to break down each position into its component parts:
- Recruitment agency fees (if applicable)
- Advertising expenses (including salaries paid out during vacancies)
Step 2: Add up all your hiring costs for the year.
In order to calculate the cost per hire, you need to add up all of your hiring costs for the year. This includes:
- Salaried recruiters or sourcers who make up a good chunk of your payroll
- Lost productivity while you're interviewing candidates and making offers (e.g., an engineer who's not working because he or she is interviewing)
- **Training new employees on their tasks and responsibilities **which takes time away from other projects or tasks that existing employees could complete
- Job board ads or subscriptions where your recruiting and sourcing team attract candidates
- Email or LinkedIn software used to reach out to warm and passive candidates
- Background checks — required before hiring a new employee
- Outside recruiting agencies or staffing firms, which are typically a one-off cost, but if you've hired a recruitment agency to help with your hiring process, then this will be an ongoing expense.
Step 3: Divide the total cost by the number of hires you made in that time period.
Now that you have the total cost and number of hires divide the former by the latter: total recruitment costs / number of hires. This will give you an average cost per hire for each role and company.
You can use this metric to compare different roles within your organization or across different companies. For example, if one role was more expensive than another but produced more hires over time (which would be reflected in its higher productivity), then maybe it's worth paying more for that position.
Or, maybe not — it depends on what kind of value they bring to your company as well as what kind of talent pool they're drawing from.
This gives you a cost-per-hire figure at the company level.
You can use the cost per hire figure to determine if you're paying too much for candidates and what areas cost more than they should be.
You can also use this metric to compare different companies. If one company's average cost per hire is lower than another's, it means that they're either more efficient or are getting better value for their money (or both). This might be an important piece of information if you're looking to hire someone from a company that isn't your direct competitor.
Many companies calculate that the average hire costs them $15,000 or more
The cost of hiring is a major expense for many companies, and calculating CPH can be useful when budgeting and forecasting.
According to the Society of Human Resource Management (SHRM), the average cost per hire is just over $4,000, but this figure varies widely depending on the industry and other factors influencing your specific situation.
Companies going through rapid stages of growth have a high volume of new hires that might come in through the same advertising channels, therefore lowering CPH.
Other companies may be hiring for very specific, tough roles to fill; highly specialized roles tend to cost more than generalist positions because they require more in-depth recruiting efforts, and it takes new employees longer to ramp up to peak productivity.
CPH is critical to budgeting and forecasting
The bottom line is that hiring the right employees is a critical part of business success, and it’s important to know how much each hire costs. By doing this calculation regularly, you can keep track of your hiring budget and make adjustments as needed.