How to Calculate Cost Per Hire

The more you can stretch your recruitment budget without compromising hiring quality, the better.

Cost per hire (CPC) is a very useful talent attraction metric for evaluating recruitment efforts.

Let's explore this KPI, why it's important in mass recruitment, and what internal and external factors come into play to determine the cost of recruitment.

What is the cost per hire?

The cost per hire is the amount of money it costs a company to onboard a new employee. With this metric, HR teams get an idea of the average spending and compare it to different periods of time, which can help identify what types of significant improvements they can make.

CPC encompasses all expenses related to hiring a new employee, such as salary, benefits, notice costs, background checks, travel, onboarding and training, employee referral bonuses, hiring bonuses, relocation costs and legal compliance.

Why is cost-per-hire an important metric?

Measuring the cost per hire is useful when making or monitoring your recruitment budget. The average cost per hire is USD$4,700. This number is important, especially in high-turnover industries such as retail, manufacturing and restaurants. In the latter sector, the turnover was 86.3% in 2021.

It is very important to pay attention to the cost per hire, especially in companies with mass recruitment. These industries handle a large flow of workers, so analyzing the cost per hire can help mass recruiters to assess the effectiveness of their talent attraction strategy.

Factors that affect the cost per hire

The cost per hire may vary between areas, or even between roles in the same area. This is due to a number of factors including:

Location of the company

Companies in less populated areas may have difficulty filling vacancies, as the pool of candidates is smaller. As a result, these companies may have higher recruitment costs such as:

• Hiring bonuses to encourage more people to apply
• Travel costs for recruiters and/or candidates.
• Marketing costs to promote employment in a wider geographical area.
• Relocation costs for new employees

However, if you're located in a metropolitan area with a larger pool of candidates, the costs mentioned above probably won't apply. More candidates mean better Search for talent and a more robust pipeline for future vacancies, reducing future recruitment costs.

Industry

Competencies often match different types of information, such as the demographics and location of your employees, customer demands, market standards, and labor restrictions; therefore, your average cost per hire is often similar. But while CPC may be high in one industry, it can also be considered low in another.

For example, the national average cost per hire in Production is USD$5,611, while the health one is only USD$3,033. Understanding the CPC relative to your industry is essential if you want to optimize your recruitment strategy.

Position level

High-level vacancies tend to take longer to fill because there are fewer candidates. Recruiting these positions often requires more time to filter CVs, multiple interviews, and larger recruitment teams.

This means that more time and resources are devoted to each vacancy than is required for mass recruitment. Low-level vacancies result in a larger pool of candidates that usually doesn't require as many steps in the recruitment process.

Recruiting time

Shorter and more effective recruitment processes streamline the process and reduce costs. Long vacancies create more tension in companies, as there is a significant opportunity cost associated with excessive recruitment time.

Internal Recruiting Costs

As we have already mentioned, recruitment costs are divided into internal and external categories. Internal recruitment costs are costs related to employees or personnel involved in the recruitment process, including:

Recruiting and attracting talent

In attracting talent, there are many costs directly associated with recruitment, including filtering CVs, interviewing candidates, and others.

Compensation (salary, bonuses, benefits, etc.)

These costs include the salaries of your staff, which can be attributed to the recruitment process. Recruiters' salaries can vary greatly depending on their location, experience, and the company they work for. However, the average salary of recruiters in the US in 2022 was about USD$70,000.

If your company has an employee referral program, you should also consider these bonuses. In addition, with new workers, you should consider relocation costs (if you offer them).

Onboarding and training

Uniforms, training modules, and even the costs of trainers are part of this category. However, some less tangible costs are also part of it, such as loss of productivity during the training period of the new employee.

Administration

Administrative costs during recruitment include any type of equipment, transfers of the recruitment team and candidates, and accommodation costs.

External Recruiting Costs

External recruitment costs are the costs of attracting talent outside your company, and can include:

Background check and drug testing

While background checks and drug tests take time and are costly, they can also reduce the risk of poor hiring.

Marketing costs

This includes advertisements on job boards and social media, recruitment events, costs of participating in job fairs, fees for recruitment agencies and other third parties.

ATS

ATS keep candidates flowing through the recruitment process, ensuring on-time hires and positive candidate experiences. The cost of this software varies depending on the model, but they usually include an initial cost plus monthly costs.

How to calculate the cost per hire?

The standard formula for the cost of hiring is:

Cost per contract= (Internal costs + external costs)/Total number of contracts made

Let's say that last year you spent $15,000 in internal recruitment costs, $25,000 in external recruitment costs, and hired 10 people. The calculation would be like this:

Cost per contract= $15,000 + $25,000/10

Cost per contract= $4,000

Advantages and disadvantages of using the recruitment cost

The CPC can provide you with useful knowledge about your recruitment efforts, but it's important to know that it's going to fluctuate. To get the most out of this metric, you need to track it over time. Once you have that database, it will be easier to make adjustments to avoid overspending.

Although CPC won't tell you Everything What you need to know about your recruitment strategy, measuring and modifying your work based on this KPI will help you maximize the ROI of your recruitment efforts.

Advantages

• It supports more strategic spending towards more effective recruitment and attraction of talent.
• It identifies cost savings that are not visible to the naked eye.
• Guide the adjustment and improvement of your recruitment and talent attraction processes.

Disadvantages

• It can reduce the attention paid to the quality of your hires (“you get what you pay for”).
• Some factors (such as loss of productivity) can be difficult to measure.

Improve your recruitment process with Emi

Although the CPC is complex, the knowledge provided by measuring this KPI can help companies improve the efficiency and effectiveness of the costs of recruiting and attracting talent.

A significant factor in how to manage these costs is to have a defined recruitment process. Using artificial intelligence and machine learning, Emi simplifies these processes to help fill high-volume operational positions with the best candidates.

Learn more about how the recruitment software from Emi can help your company optimize your recruitment efforts with a free demo of our services.

‍