What is Cost Per Hire and Why Should You Care?
Ever wondered about the true cost your company bears for each new employee hired? That's exactly what Cost Per Hire (CPH) is all about. This metric helps organizations determine how much they spend on hiring one individual.
Why should you care? Understanding your CPH can reveal a lot about your recruitment efficiency and guide you in making better, budget-friendly hiring decisions. By keeping this metric in check, you can identify areas for improvement and optimize your recruitment process, saving both time and money.
How to Calculate Cost Per Hire
Calculating the Cost Per Hire is easier than you think. You need three pieces of information: your total internal recruiting costs, your total external recruiting costs, and the number of new hires.
Formula
[\text{Cost Per Hire} = \frac{\text{Total Internal Recruiting Costs} + \text{Total External Recruiting Costs}}{\text{Number of New Hires}}]
Where:
- Total Internal Recruiting Costs includes everything your company spends internally to recruit candidates — salaries of your internal recruitment team, costs of internal job postings, recruitment software subscriptions, and any internal referral programs.
- Total External Recruiting Costs are the expenses you incur externally, like advertising costs, fees for job boards, and recruitment events.
- Number of New Hires is the total number of people hired during the given time period.
Calculation Example
Let's say your company has the following recruiting costs for the quarter:
- Total Internal Recruiting Costs: $30,000
- Total External Recruiting Costs: $20,000
- Number of New Hires: 10
Using the formula:
[\text{Cost Per Hire} = \frac{30{,}000 + 20{,}000}{10} = \frac{50{,}000}{10} = 5{,}000]
The cost per hire is $5,000. This means your company spent an average of $5,000 to bring each new employee on board.
Why Calculate Cost Per Hire?
- Budgeting: It helps in accurate budgeting and planning for future hiring needs.
- Efficiency: You'll be able to gauge the effectiveness of your current hiring strategies.
- Identify areas for improvement: It enables you to pinpoint costly areas in your recruitment process and find ways to optimize.
In essence, keeping track of your Cost Per Hire provides a comprehensive insight into your recruitment finances, paving the way for a more efficient and cost-effective hiring strategy.
You might also like: Cost of Sales Calculator, Cost Per Impression Calculator, or Retained Earnings Calculator.