- Add up both your external costs and internal costs on all new hires in a given period.
- Then, divide the resulting number by the total number of hires in that same period.
Knowing how to calculate cost per hire (CPH) is essential to your hiring strategy if you work in talent acquisition. You can decide where to cut costs (as is frequently desired by your CFO) or where you can invest more for high-quality hires by knowing how much it will cost you to find new talent. Finding the ideal balance can be challenging, so we’re here to assist you in making those data-driven choices.
How to Calculate Cost Per Hire (CPH)
Why is cost per hire important?
Cost per hire is crucial because it can improve your cost visibility and clarify where your profit is being spent. Understanding cost per hire can help you better allocate resources to profitable areas of a business because it enables you to learn more about your spending. It can also assist you in assessing other metrics, such as the efficiency of new hires.
For instance, if you are observing lower new hire effectiveness, a low cost per hire may be a factor in this. Understanding what cost level is best for your company can be determined by tracking your cost per hire consistently throughout increases and decreases in hiring funds.
Although it’s not necessary to take into account every factor listed under internal and external costs in order to obtain an accurate cost per hire, doing so can help you assess the significance of each cost in your hiring process.
What is cost per hire?
The cost per hire for a business is the cost of hiring each employee. For instance, if you hire 300 people annually at an average cost of $2,500 each, you might spend $750,000 on average that year. Knowing the cost per hire enables you to monitor hiring expenses annually to assess any changes. Software, advertising, and relocation costs are added together in cost per hire. You have the option of evaluating cost per hire using all business metrics or just one particular department.
What is the formula for cost per hire?
Business owners can compute the cost per hire formula based on a chosen time frame, such as monthly or yearly. The initial cost per hire formula was developed with assistance from both the Society of Human Resource Management and the American National Standards Institute. The cost per hire formula is:
Cost per hire is equal to (internal recruiting costs plus external recruiting costs) / the total number of hires.
How to calculate cost per hire
Consider using some of the following steps to determine your company’s cost per hire:
1. Evaluate internal costs
Internal costs include the organizational and personnel expenses necessary for a company or department to run. Employees take into account “internal capital,” or the available funds from within the company, when calculating internal costs. Other internal costs include:
2. Determine external recruiting costs
Any expenses incurred by your company for hiring from outside vendors or services are referred to as external recruiting costs. This could refer to any hiring-related fee, like those for job board postings or fees for external recruiters. External costs include some of the following:
3. Calculate cost per hire
Divide the sum of your internal and external costs by the total number of hires made during that time period. The total number of hires includes both full-time and part-time employees and includes both internal and external hires. Your total number of hires may include:
Tips for calculating cost per hire
If you’re estimating cost per hire, you might want to take some of the following actions to raise your rates:
Examine cost regularly
Calculate cost-per-hire evaluations as frequently as possible for the best results. You can better understand your average cost and determine whether that average is acceptable by calculating your cost per hire on a regular basis. After a business improvement, like a new hiring procedure or the implementation of new technology, cost per hire calculation can be used to evaluate the efficacy of the method.
When examining costs, keep in mind that a rise in costs might not indicate that your system is ineffective. An increase in costs could indicate that your company recently made more effective hires. You can more accurately assess the effectiveness of your process and identify any elements that might need to change by conducting regular evaluations of your cost per hire.
Understand your hiring sources
When examining costs, keep in mind that a rise in costs might not indicate that your system is ineffective. It might indicate that your company has recently made more effective hires. Regularly assessing your cost per hire can help you determine how efficient your process is and what aspects might need to be changed.
Analyze each department
Consider performing smaller department-level evaluations in lieu of calculating your cost per hire across the entire company. While some departments may benefit from the current hiring process, others may need adjustments to it. Consistent and individual evaluations are crucial for the entire company because different departments may have different sources of increased or decreased hiring quality.
Plan with your data
Consider incorporating what you learned from analyzing your cost-per-hire data into your future processes. For instance, if you notice that your hiring quality is declining despite making a consistent number of hires each year, think about reviewing the hiring programs you use.
Consider reviewing your procedure to see if you can apply the same level of improved quality to other departments if your hiring quality improves despite making fewer hires each year. The more frequently you assess your procedure, the more quality improvement you might observe.
Please note that Indeed is not affiliated with any of the businesses mentioned in this article.
FAQ
What is the cost per hire?
Simply put, “cost per hire” is the sum of your budget that you spend on hiring someone. If you’re curious as to what that figure might be, a recent survey by the Society of Human Resource Management (SHRM) revealed that the average CPH was $4,129.
How do I calculate cost per hire in Excel?
DEFINITION. Cost-Per-Hire (CPH) is the mean average of all costs divided by the number of hires for the purposes of this document. External Cost Factor. a cost associated with hiring that is paid to third parties during the hiring process
How do you calculate time per hire?
This metric shows how quickly you identified your top applicant and advanced them through the hiring process. Assume that the day you opened a particular position is Day 1 in order to calculate the time to hire. Your time to hire would be 25-10 = 15 if your top candidate accepted your job offer on Day 25 and submitted an application on Day 10.
