What is cost per hire?

Cost per hire (CPH) is a recruitment metric that companies use to determine the expense of each stage of the hiring process. The American National Standards Institute developed this formula to calculate cost per hire: 

(External recruiting cost + internal recruiting cost)/ (Total number of hires during the period) 

Organizations can benefit from CPH when using it with other essential metrics such as turnover rate, first-year attrition, retention rate, quality of hire, and time to hire.

Why should HR leaders care about cost per hire?

Planning, creating job descriptions, promoting jobs, sourcing, screening, interviewing, background checking, offering positions, and onboarding all demand time and financial investment. Measuring how much money the company spends on the hiring process allows leaders to evaluate each phase, tweak it for greater efficiency, and drive better business outcomes. 

What can HR leaders do to use cost per hire effectively?

HR leaders can implement these practices to maximize cost per hire:

  • Design a good onboarding program. A holistic onboarding experience that addresses compliance, logistics, management, training, and cultural engagement is crucial for employee retention. Though investing in employee onboarding is an expense, this stage is worthwhile and can promote long-term engagement. Additionally, automating components of the onboarding process through functions such as HiBob’s task lists, can lessen HR’s workload and reduce costs. 
  • Integrate succession planning.  HR leaders can incorporate a succession planning program to determine competency needs and reduce the time to fill. Succession planning allows the organization to hire internal employees who are already familiar with the company. Preparing a talent pool of employees to fill vacancies and accept greater responsibility helps maintain productivity and morale while lowering company costs. 
  • Upgrade the recruitment process. HR leaders can reduce the recruitment period and find quality candidates by implementing an employee referral program. HR can further enhance the recruitment process by integrating an ATS to screen and manage applications, organize paperwork, send emails, and track candidates during the hiring process. An automated ATS is efficient, saving HR professionals countless administrative hours and consequently reducing company costs.
  • Calculate different categories of CPH. Determining the CPH for specific roles and departments enables leadership to identify which areas need adjustment. For example, perhaps through measuring CPH HR leaders discover that they are overspending on the interview process. HR can use this data to leverage cost-reducing changes. 
  • Focus on the big picture. Trying to lower the CPH by cutting corners could potentially backfire and lower overall business profit. Businesses need to spend money to make money. HR consultant David Green emphasizes that companies should not just focus on reducing costs but rather on investing the right amount of money that will promote optimal business results. 

How can cost per hire improve company culture?

Cost per hire is a crucial piece of the business puzzle. Quantifying hiring expenses contributes to strategic investment in talent, which, in turn, can lead to a more successful business and robust, thriving, company culture.