Cost-per-hire: How to calculate and improve it

Hiring & Onboarding
Marissa Taffer
June 4, 2021

Photo by Michael Longmire on Unsplash

If you run a business or do any hiring for your organization you know finding the right person isn’t as simple as just putting a job description on the internet and waiting for the perfect candidate to show up. Good recruiting practices require some investment of time and money. If you’ve ever wondered about the cost of hiring (and how to improve it) we broke down all the things you need to consider.

What goes into the cost of hiring? 

Retaining a recruiter or recruitment team

If your company is large or rapidly growing and has a lot of roles to fill consistently it might make sense to hire a recruiter or build a team. If you are only occasionally looking to fill roles or need to fill a specialized role, outsource your recruitment function to an agency or recruiter who works on a contract basis. 

Whichever path you choose, there will be costs associated with recruiting. Whether it is salary, benefits, or a retainer fee. As a business owner, you may try to reduce recruitment costs by handling it yourself, but this will take you away from some of the critical work you are doing to grow the company. So, while you should meet with the final candidates for important roles before your company makes someone an offer, as the business owner, you should outsource recruiting.   

Paying to place ads on the right job boards

Getting your job posting in front of the right people quickly will save you a lot of time (and potentially even money). If you are looking for candidates with a certain engineering skillset, do some research before posting your role. What are the best job boards for engineers in your industry? Are there job boards specifically for remote workers you can leverage to find new talent? Most job boards range from a few hundred to a few thousand dollars depending on the role and how long you need to keep the posting up.

Public Relations & Social Media

One cost of recruiting that many companies don’t think about is public relations. This may include networking at industry conferences and tradeshows, and sponsoring events (non-remote businesses), or monitoring review sites like Glassdoor, and responding to comments as well as creating and maintaining a careers page on your website and social media.

From website design and development to content creation and social media management, these numbers can add up. It is important to invest in these things to help attract the best talent. After all, who wants to work for a company that they have never heard of before or can’t find any information about what it’s like to work there?

Time for interviewing candidates 

Hypothetically speaking, let’s say for each role your recruiter screens 100 resumes/applications and chooses 10 candidates. They spend 20-30 minutes on a call with each of these candidates and put 5 through to meet with the hiring manager. The hiring manager spends 1 hour with each candidate and chooses 2 that will advance to the next round of interviews. These two candidates each spend an hour with 2 other members of the team and the head of the department. That means the recruiter probably will spend 8 - 12 hours reviewing, screening, setting up interviews, and communicating with the team and candidates. You want to be prepared for this investment of time. 

Tracking and assessment software 

If you use an applicant tracking system (ATS) or any type of pre-employment assessment these can add costs to your recruiting process. The cost can vary from a few hundred dollars a year to thousands of dollars. While this software can be helpful to make sure things don’t get lost in the shuffle and that you have qualified candidates, be wary of paying for features you don’t use or don’t need. 

Background checks 

If your employment offer is contingent on a background check, you will need to pay for each background check to be conducted. If a candidate fails the background check, the recruitment process may also need to be restarted as potential candidates may have lost interest or found other employment opportunities. 

What is the bottom line?  How do you assess the cost per hire, and what can you do to improve it? 

The Society for Human Resource Management's (SHRM's) Human Capital Benchmarking Report (2016) found that the average cost per hire was $4,129. This number comes from all of the costs associated with hiring for an organization divided by the number of hires made per year. 

While that number does give a good starting point it is not the entire picture. Other factors you may want to consider include the time it takes to hire and the length of time positions sit vacant once someone leaves the company. For example, if you have an executive assistant who vacates her position and it takes 6 months to find a replacement not only are you looking at the recruiting costs, you are also looking at the cost of overtime or a temporary worker to take on the work that person was doing. 

In order to reduce the cost of hiring the best thing to do is make a budget and a plan. Decide how many people you think you will need to hire, and how you will handle recruiting. Research the best places to post jobs and what they will cost. Invest in the right software and set up a process for screening applicants, interviewing, and creating and sending offers.

Go global with Panther

Let's talk