Pouring money down the drain might be a great way to clog up a sewer system, but it’s not such a good idea when it comes to recruitment. As your company grows, knowing your cost-per-hire (CPH) can help your hiring team manage their budget and develop a hiring process that represents value for money. But how can you number-crunch your way to a sustainable CPH? Find out here.
What is cost-per-hire?
Cost-per-hire refers to the amount of money your organisation spends for each new hire. While taking on new staff often freshens things up, the reality is that every time you aim to fill a vacancy, the list of potential costs is as long as your arm.
Looking at this expenditure in closer detail, you can break the cost of hiring into external and internal costs:
- Posting a job ad
- Paying a recruitment agency
- Candidate travel and lodging
- Recruitment events and careers fairs
- Tools – sourcing, assessment and your Applicant Tracking System (ATS)
- Any money paid out to third parties, such as background costs.
- Your recruiting team’s salaries
- Employee referral bonuses
- Fancy stationery. Okay, we’ve made this one up, but it’s nice to have a list of three.
As we will explore, there are other indirect costs to consider, like the amount of engineering time and resources that are taken up for each appointment, so the above examples merely skim the surface of typical hiring costs. All things considered, there is more to CPH than meets the eye.
How to calculate cost-per-hire
On the face of it, there is a simple formula for calculating cost-per-hire based on the below from Workable.
As you can see, the conventional way of calculating your CPH is to add up your external and internal costs during a recruiting cycle and divide by the number of hires. But is that all you need to do?
Don’t forget about engineering costs
It’s not all about adding up the nickels ‘n’ dimes: you have to consider how much time you’re spending recruiting. Engineering time is expensive, time-consuming, and the costs can vary wildly by channel. Plus, every time you pull your people away from their day job, you’re essentially trying to run a restaurant while taking your best cooks out of the kitchen.
Also, it’s important to note that the ‘internal’ costs of recruitment don’t take into account engineering salaries, as these are taken from a separate pot. So a so-called cost-per-hire metric won’t necessarily tell you what’s being spent as a whole.
A better way to calculate cost-per-hire
To actually get a decent gauge on your CPH, you need to factor in engineering time. To do this, we propose a different metric, one that’s based on time spent by your team rather than overall salaries and fixed costs. Let’s call it...drumroll... cost-per-hire prime! Or CPH prime.
Our magical formula can help you get a handle on what your spend actually looks like, and compare costs across different channels. While it doesn’t factor in fixed costs like salaries or events, you can always use the tried-and-tested CPH formula above if you want to work out those sorts of calculations.
To calculate your CPH, check out our handy spreadsheet and fill in your numbers.
Save money (and stress) with Intrro
Intrro’s employee referral and collaboration tool is a great way to save money on eye-watering recruitment costs. By tapping into your co-workers’ memory bank, you can swerve the traditional way of recruiting and build a team of happy campers who – shock horror – actually like working together!