Cost per hire is the total cost of your recruitment process, divided by the number of people you hired. Work it out over a twelve-month period and you have a good picture of your cost per hire. Many companies spend more on recruitment than they need to. What we see is that companies rarely have a clear view of their cost per hire. That is a shame.
How do you calculate cost per hire?
The definition is simple, the calculation less so. What many employers forget is that the process often carries unnecessary variable costs. There are various internal and external costs to account for. Let us start by mapping out those internal and external costs.
Internal costs
- Salaries of the entire recruitment department
- Courses and training for the recruitment department
- Overheads and workspace for the recruitment department
- Salaries of hiring managers
- Referral programme bonuses
- Employees hired
- External & internal candidates
- Employees taken on from a temporary agency contract
- Interns, optional to include
External costs
- Job postings on your website
- ATS candidate management tool
- LinkedIn Recruiter seat
- Access to other job boards
- Employer branding
- Recruitment agency fees
- Job board postings
- Intelligence and personality tests
External costs are often left out of the cost per hire. That gives you an unrealistic picture of what you are spending on recruitment. Companies are regularly taken aback when we lay their cost per hire out for them. A lot can be saved on external costs by outsourcing part of the recruitment process. Many recruitment partners already have an ATS or a LinkedIn Recruiter seat, for example, so you do not have to put money into those yourself.
When is it smart to outsource recruitment (in part)?
Fast-growing companies such as start-ups and scale-ups are considerably better off leaving recruitment to a specialist. The fewer people you take on, the higher the external costs per hire and therefore the higher your total cost per hire. On top of that, companies with fewer vacancies often do not yet have an efficient recruitment operation in place to find the right candidates quickly.
