Cost per Hire Recruiting Metric

Which Recruitment Metrics Are Right For You – Cost Per Hire?

In the age of Big Data, we have access to crunch numbers and draw insightful conclusions in many situations. The recruiting and human resources realm is no exception thanks to ATS, HRIS, LMS…and many other alphabet soup acronyms. But sometimes having that much information at our fingertips can be disabling and intimidating if we aren’t sure which metrics are worth our attention for our specific company. And let’s say you do know which KPIs will serve you well…how do you then decide on appropriate benchmarks for each metric for your business?

It may not be as simple as relying on comparisons for your industry because many factors can come into play such as your company size, geographic area, organizational culture, compensation and benefits package, number of steps in the hiring process and brand reputation. But, you’ve got to start somewhere…and as my favorite high school Composition teacher Mr. Barlowe often reminded me, “you’ve got to know the rules before you can break the rules!” Or for our purposes…know the meaning of various metrics before deciding which ones to throw out the window.

With that in mind, this blog series will provide a run-down of some metrics, AND mitigating factors, that might influence your decision on whether each could be a powerful piece in your recruitment dashboard. First, we’ll examine…

Cost Per Hire (CPH)

The average costs associated with hiring an employee for your company are comprised of both tangible expenses and the opportunity costs of various individuals’ time tied up in the selection process. While its easier to calculate the former by tallying expenses such as external job board postings, staffing firm services and criminal background check fees, figuring the cost of your staff members’ time is a little trickier as it varies with individual role and employee. While I’ll focus on some quick basics in this blog, for a comprehensive look at the CPH metric, check out this collaborative effort between ANSI and SHRM.

Why Hiring Costs Matter

CFOs love numbers like this as it directly relates to the bottom line and, over time, can keep you honest if recruiting expenses begin to inflate without generating improved efficiency in the selection process and/or quality of hire. You can use it to look for trends over time and across positions, as well as give your hiring managers a gentle nudge urging them to make up their mind more quickly if their indecision (or lack of sense or urgency to responding to applicants quickly) affects this indicator. Here are just a few examples of items that may contribute to your cost per hire calculations:

The cost of time to…

  • Write a job description
  • Push a job listing to various external job boards (will vary depending on hiring software that may or may not be in place) – and maybe you’ll need time to research which job boards will be best suited for your role, too.
  • Review applications and conduct phone interviews. An applicant tracking system (ATS) – though an expense – might save one enough time in shortening the screening process to be worth it.
  • Develop interview questions
  • Correspond with applicants to schedule interviews and send rejection notices
  • Prepare materials to recap applicants’ initial pre-screen for hiring managers
  • Make up for any revenue lost from stakeholders involved in the process that were pulled away from any normal money-generating activities
  • Coordinate the logistics involved with onboarding a new employee prior to their start date

The hard cost for…

Mitigating Factors for CPH Benchmarking

There is a direct relationship between cost per hire and time to fill (another metric to be discussed in the next installment of this series). So, the longer it takes you to find someone for a position, the higher your cost per hire figure will climb. However, while keeping expenses in line should naturally be important, you probably don’t want to pinch pennies so much that you are unable to successfully hire the right individuals. Here are some potential factors to consider:

  • If you historically just can’t find enough applicants for a position that is open frequently, then it’s reasonable to expect that your company might need to fork up the money for paid job boards or booths at job fairs.
  • If certain positions in your industry are uber-competitive, then grab your share of the limited candidate supply by considering a signing bonus.
  • Despite time being money, if you have previously rushed through the selection process to fill a seat with a warm body, then slowing down to make sure you find the right candidate for not only the position, but the company culture, just makes sense.
  • If you are a small company, it may be hard not to have a CPH that is especially weighed down by the opportunity cost of employees’ time. With fewer people on the team, everyone must wear many hats and contribute a great deal of time to the hiring process. Each new employee is that much more critical in a small business that may not be able to afford to make hiring mistakes.

Cost per hire may very well be an important element in your analysis of recruiting efforts. Looking at the fluctuations to this metric over time for your specific organization will allow you to make the appropriate adjustments and decisions to propel your business forward.

HireCentric applicant tracking software from ExactHire is specifically geared toward the SMB market. For more information on how this tool can impact your CPH, please visit our resources page or contact us.

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