Enterprises now operate in a heavily talent-driven market. And cost per hire is a crucial element to optimise the recruitment costs. Understanding how to calculate the cost per hire is vital for any business as it not only drives cost-effective hiring decisions but also manages budgets.
In this blog, we will talk about accurately calculating the cost per hire and, more importantly, lowering it without compromising on candidate quality. Whether you are managing recruitment at a multinational level or refining your existing process, these tips and strategies will help you to create a greater impact.
importance of cost per hire calculation
Organisations use Cost Per Hire (CPH) as a formula that determines the total cost invested in recruiting a new employee. It provides a complete picture of hiring-related expenses, including both internal and external recruitment costs.
Accurate tracking of cost per hire helps businesses measure the impact of recruitment efforts on finances. Additionally, it optimises budget allocations for future hirings and analyses different recruitment channels. All in all, the cost per hire calculation provides companies with a benchmark to assess the ROI of their recruitment strategies and reduce hiring costs over time.
how to calculate the cost per hire?
The formula to calculate cost per hire is straightforward. Incorporate both internal and external costs incurred during the hiring process and divide the sum by the total number of recruitments made in a specific time frame.
Cost per hire = Total Recruitment Cost/Total Number of Hires
internal recruitment costs
An organisation incurs these expenses internally:
- Recruiter salaries: Base, bonuses, and benefits
- Hiring team training: Upskilling costs for your hiring team
- Interviewing time: Hours spent by employees conducting interviews
- Software costs: Expenses associated with Applicant Tracking Systems (ATS) and other tools
- Administrative overhead: Compliance and other operational costs
- Referral program incentives: Bonuses or payments for employee referrals
external recruitment costs
An organisation pays this to third-party services and vendors:
- Job posting fees: Costs incurred for posting jobs on various platforms
- Candidate screening fees: Costs for background checks
- Job fair fees: Costs for attending or organising career events
- Agency commissions: Payments made to head-hunters or recruitment agencies
- Recruitment software subscriptions: Costs for tools used to manage hiring
- Relocation assistance: Costs incurred to relocate a new hire to a new location
strategies to reduce the cost per hire value
Reducing the cost of a hire without compromising on quality needs a smarter approach. The following targeted strategies will help you significantly lower the recruitment costs:
streamline and optimise workflows
Map each stage of your recruitment journey and identify the bottlenecks. Use Applicant Tracker Systems (ATS) to automate tasks like screening and scheduling. Automate the process to reduce manual effort and time-to-hire.
leverage digital interviews
Video interviews, particularly in screening stages, save a lot of time and money on logistical costs, travel, and scheduling. It also speeds up the hiring process and helps you evaluate a candidate more efficiently. To boost efficiency, implement a scalable video interview platform and integrate with your ATS. Standardise your interview questions and evaluation metrics for consistency. Additionally, use AI tools for screening and train interviewers for the best virtual engagement practices.
leverage AI for predictive hiring
By predicting candidate success and improving decision-making, AI can dramatically boost recruitment efficiency. From resumes to interviews, to identify the best candidates, AI tools can handle a vast amount of data. According to the Harvard Business Review, AI-powered recruitment can predict candidate success more accurately than conventional ways, helping organisations make more informed decisions.
improve candidate screening
Implement structured screening strategies to identify strong candidates in the early stages of hiring. Domain-specific pre-assessment tests can help with this.
craft targeted job descriptions
Communicate the job role effectively through compelling, precise, and clear job descriptions. Focus on the most relevant job responsibilities, qualifications, and add highly essential keywords to attract the right people while discouraging the irrelevant applicants.
accelerate time-to-hire
Speeding up the hiring process naturally lowers the cost. Use AI and automation on high-impact areas like screening, candidate communication, interview scheduling, and follow-ups to minimise the time taken to fill a position. This will free up your team to manage other high-value activities well, such as evaluating cultural fit, conducting in-depth interviews, and building relationships with the right candidates. By focusing human resources on high-value activities and aligning strategy with candidate experience, you accelerate the hiring process.
improve the retention rate
Retention is cheaper than re-hiring. Reducing the cost per hire is more than just recruiting — it’s about retention too. Focus on highly suitable candidates and invest in a smooth onboarding process while fostering a positive culture. Keep track of retention rates regularly to spot issues early and minimise the expenses related to bad hires.
utilise hiring analytics
Make well-informed decisions by leveraging data. Analyse key metrics and identify which hiring channels deliver the best ROI. Understand the industry cost per hire standards and benchmark yours to identify potential savings.
conclusion
The cost per hire of your organisation reflects the maturity of your hiring process and the alignment of your talent acquisition teams and HR. Learning how to calculate cost per hire helps you streamline workflows, improve candidate quality, and eventually identify more cost-saving opportunities.
Explore how Infosys BPM’s Human Resource Outsourcing (HRO) services can help you with talent acquisition, retention management, enhancing employee experience, and achieving operational excellence.
