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Cost Per Hire: Revealing the True Expenses of Hiring New Talent

Recruitment isn’t just about finding the best candidates, it’s also about managing the costs associated with the hiring process.

Understanding your cost per hire (CPH) is crucial to making informed recruitment decisions. CPH refers to the total amount of money spent on recruiting and hiring a new employee, including both internal and external costs.

We’ll define CPH, delve into the various costs involved in the hiring process (both internal and external) and give you our expert recommendations on how to reduce your CPH. Stop struggling to grow your business, start with better staffing.

What Is Cost Per Hire

CPH is a key metric used in human resources and recruitment to calculate the average cost incurred by an organization to fill a job vacancy with a new employee.

The calculation is essentially the total expenses associated with the recruitment process. It’s extremely valuable for employers to know their overhead employment costs, and see if there’s room to decrease expenses and get a better return on investment.

Cost Per Hire Formula

The formula for the average cost per hire measures the costs associated with the process of hiring new employees. These include expenses such as sourcing, recruitment advertising costs, onboarding and more.

Breaking Down the Cost Per Hire Formula

The common costs associated with hiring include:

Common Internal Costs

     

      • Advertising and job postings

      • Employee referral programs

      • Background checks and pre-employment assessments

      • Equipment and technology

      • Administrative expenses

      • Interviewing expenses

      • Onboarding and training

      • Candidate assessment costs

      • Employer branding

      • Internal recruiter salaries

      • Hiring manager salaries

    Common External Costs

       

        • Candidate travel and relocation

        • Recruitment events and job fairs

        • Job advertisement fees

        • External recruiter fees

        • Recruitment agency fees

        • Staffing agency fees

        • Recruitment software

      Average Cost Per Hire by Industry

      The average CPH can vary depending on factors such as the type of organization, geographic location, job level and specific hiring practices. While there is no universally agreed-upon average cost per hire, here are some estimates and benchmarks:

      Industry Cost Per Hire*
      Healthcare $3,500
      Legal $4,700
      Professional Services $3,000-$5,000

      Information based on the Society for Human Resource Management (SHRM)’s Human Capital Benchmarking Report.

      The Importance of Calculating Cost Per Hire

      Knowing your business’ CPH is important for several reasons:

         

          • Financial planning and budgeting: It’s the core of your business. Understanding the CPH allows you to accurately estimate and allocate resources for your recruitment activities. It helps you plan your hiring budget more effectively by providing insight into the expenses involved in bringing new employees on board.

          • Cost optimization: Monitoring and analyzing the CPH helps you identify opportunities to optimize recruitment costs. By identifying high-cost areas and inefficiencies in the hiring process, you can implement strategies to reduce costs and boost your bottom line.

          • Return on investment (ROI) assessment: Calculating CPH enables you to evaluate the ROI of your recruitment efforts. By comparing the cost of hiring to the value and productivity new employees bring to the organization, you can assess the effectiveness of your recruitment strategies and make data-driven decisions to improve your hiring outcomes.

          • Process improvement: Analyzing CPH can help identify bottlenecks or areas of inefficiency in your recruitment process. By pinpointing areas that require improvement, such as reducing time-to-fill or enhancing candidate screening methods, you can streamline your hiring process and reduce costs associated with prolonged vacancies.

        Related: Understanding The Cost Of Hiring An Employee In 2023

        FAQs

        What is a good CPH benchmark?

        According to a survey conducted by SHRM, the average cost per hire for organizations in the United States is about $4,700. This benchmark can vary significantly across industries and organization sizes.

        It can be helpful to research hiring costs in your industry to gain insight into CPH benchmarks within your specific field.

        How often should I track cost per hire?

        Track CPH on a regular basis to maintain up-to-date insights into your recruitment costs.

        Quarterly or monthly tracking is common and allows you to identify trends, compare costs across different hiring periods and make timely adjustments to your recruitment strategies if needed.

        How can I reduce my cost per hire?

        Focus on cost-effective sourcing channels that yield high-quality candidates. Utilize online job boards, social media platforms, professional networks and employee referrals to reach a wider pool of qualified candidates without significant costs.

        What are the most important factors that impact cost per hire?

           

            1. In-house vs. outsourced talent

          By outsourcing support talent you can avoid administration fees, added office expenses or any other unnecessary costs. Outsourcing administrative tasks allows employers to save money on employee overhead, office space, equipment and oversight.

             

              1. Job market competition

            The level of competition for talent in your industry and location can impact CPH. In a highly competitive market, attracting and securing top talent may require additional efforts and potentially higher costs, such as offering competitive salaries, benefits or signing bonuses.

               

                1. Recruitment source

              Different sourcing methods, such as job boards, social media, recruitment agencies, or employee referrals vary in terms of cost and effectiveness.

                 

                  1. Recruitment process efficiency

                Streamlining and automating various stages of the process, such as screening, interviewing and onboarding can help reduce costs associated with manual tasks and save valuable time.

                Related: Recruitment Process Outsourcing: What Is It And How Can Your HR Department Benefit

                How can I improve the quality of my hires while reducing cost per hire?

                Outsourcing administrative tasks is one cost-efficient way for employers to improve their CPH. Without the need to pay employee overhead, the costs of expanding and more, businesses can save money outsourcing certain processes.

                With outsourcing, you can skip administration fees, added office expenses or any other unnecessary costs.

                Plus, outsourcing can help departments manage workloads during peak periods, without having to hire additional full-time staff—reducing staffing costs.

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