Continuing with the focus on talent management metrics (see the above articles for more information), we will focus on the details surrounding the cost-per-hire metric. The Society for Human Resources Management (SHRM) notes that cost-per-hire is consistently listed by HR professionals as one of the most valuable HR metrics. Many organizations monitor and evaluate cost-per-hire data, as opposed to other HR metrics that may be difficult to quantify, because the components which make up the cost-per-hire calculation are often easy to calculate and track. There are also those who feel there is no value in the cost-per-hire metric, but for the purposes of this article, we will examine the factors affecting cost-per-hire, how to calculate it and why it may be helpful to your organization.
Associated hiring costs may include a variety of expenses including, but not limited to:
- Job postings and other advertising
- Employee referral program incentives
- Third party agency fees
- Travel and relocation costs
- Recruiter salaries or placement fees
- Immigration expenses, including attorney and filing fees
- Background and reference checking
- Physical and drug screens
- Applicant tracking system (ATS) costs
- Pre-employment assessments
Cost-per-hire is defined as the sum total of all costs associated with acquiring new employees over a given time period, divided by the number of hires made within that same time period. The basic components aren’t the only factors that should be considered, however. According to SHRM:
“Since industry, staff size, profitability and geographic region influence recruiting costs, benchmarking is most effective when organizations compare their cost-per-hire against similar organizations’ metrics, making for a meaningful comparison. The organization’s overall business strategy can affect cost-per-hire. An organization whose business strategy is to compete on price focuses on low margins and high unit sales. By keeping costs down in all areas of its business, including cost-per-hire, an organization ensures that its profitability is high. Conversely, an organization whose strategy is to lead its market with innovative products that are often more expensive than the competition may have higher business costs. Recruiting costs may also be high because as the organization seeks highly creative, innovative talent, it will need to increase its sourcing strategies and costs to scan the country for top talent.”
While all factors need to be considered and all associated costs accounted for, in the end cost-per-hire can be a valuable metric by which to evaluate recruitment efficiency. It allows organizations to remain budget-conscious, while pinpointing flaws in recruitment processes in order to improve efficiency and lower costs. Effective processes can positively affect time to hire and quality of hire metrics, as well.
Traci Kingery, PHR is an HR Professional and freelance writer based in the Midwest, specializing in immigration and talent management. When she’s not improving unemployment, she keeps busy with her husband and four children.