One of the most important key metrics in HR analytics is “Cost per Hire” (CPH). This performance indicator is defined as the combination of all internal and external recruitment costs to the number of positions that are filled in one period (e.g. a financial year). It provides HR professionals and managers comparable information about the effectiveness and efficiency of their recruitment processes. The number of positions refers to the actual number (internal and external) and includes also part-time jobs and temporary hires. There are external and internal cost factors which are summarized in the categories below.
I have created a tool that enables you to easily calculate your cost per hire. The calculation presented here refers to the standard of the Society for Human Resource Management (SHRM). Try it out here:
External cost factors:
- Advertising and Marketing: expenses related to job openings on job boards, social media or other channels, but also to campus recruiting events.
- Employer Branding: expenses spent on efforts that are related to the brand and reputation as an employer instead of specific positions to ensure a high quality candidate pool in the long run.
- Consulting and Agency Services: expenses spent on third-party agencies or consulting companies when one or more parts of the recruitment process are sourced out.
- Selection procedures: expenses spent on several tests and assessments, including license fees for tests, expenses for assessment centres, background checks or drug tests.
- Travel expenses for candidates and recruiter
- IT-Infrastructure: expenses spent for applicant tracking systems or other related ERP-Software.
Internal costs factors
- Costs for Recruiting and Sourcing Staff: includes basic salary, bonus for regular recruiters and other staff involved in recruiting.
- Governmental Compliance: costs that refer to expenses for salary and bonus of people that take care of governmental compliance.
- Learning and Development expenses for recruitment staff
- Associated Staff costs: expenses related to management members taking part in recruitment or selection processes or participating in recruitment events.
The segmentation of cost per Hire data provides more meaningful information compared to overall results. Typical segmentations are leadership levels, industry or recruiting channels. There are several sources of useful benchmarks. Nevertheless, not all cost per hire calculations are based on the same standard, which makes it necessary to check first if benchmarks are really comparable.
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Should you have any questions, drop me a line or leave a comment!