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Cost per Hire

Cost per hire (CPH) is a recruitment metric that calculates the total cost involved in hiring a new employee. It includes all expenses related to the recruitment process, including advertising, recruitment agency fees, job board costs, interview expenses, employee referrals, and the salaries of internal recruiters.

Why cost per hire matters for your recruitment strategy

Understanding the cost per hire metric is more than a financial exercise. It’s a strategic tool that shapes recruitment efficiency and workforce planning. High recruitment costs can directly affect profitability, diverting resources from other areas of business growth.

The impact of high recruitment costs

Recruitment inefficiencies often lead to:

  • Reduced profitability: Excessive spending on hiring processes can strain budgets and hinder investments in other critical business functions.
  • Resource waste: Over-reliance on costly external agencies or ineffective internal processes can inflate costs unnecessarily.
  • Missed hiring deadlines: Delayed recruitment can disrupt operations, leading to extended vacancy periods and overburdened teams.

Addressing workforce challenges with CPH

Cost per hire is closely tied to broader workforce challenges, such as talent shortages and high turnover rates. By tracking and optimising CPH, businesses can:

  • Attract and retain top talent by investing in targeted recruitment efforts.
  • Reduce turnover by focusing on quality hires who align with company culture and goals.
  • Meet hiring deadlines effectively, ensuring uninterrupted operations.

How to calculate cost per hire

Calculating cost per hire doesn’t have to be complex. By breaking it down into manageable steps, businesses can gain a clear understanding of their recruitment expenses.

The cost per hire formula

CPH = (Internal Costs + External Costs) ÷ Total Number of Hires

Internal costs include all expenses related to in-house recruitment efforts and external costs are incurred through third-party services or resources.

Example of cost per hire calculation

Let’s assume a company spent £50,000 on internal recruitment efforts and £30,000 on external services to hire 20 employees. Using the formula:
CPH = (£50,000 + £30,000) ÷ 20 = £4,000 per hire

Understanding external and internal costs

Cost Type Description
Internal Costs
  • Salaries of HR and recruitment staff. Wages paid to employees directly involved in hiring.
  • Technology investments. Costs associated with applicant tracking systems (ATS) or other recruitment tools.
  • Training and onboarding. Expenses for preparing new hires to integrate into the company.
External Costs
  • Job board fees and payments to advertise open positions.
  • Agency fees, costs for recruitment agencies, or staffing platforms.
  • Background checks and assessments as well as screening and verification processes for candidates.

Hidden costs to consider

Recruitment expenses aren’t always apparent. Hidden costs like extended vacancy periods, which can disrupt productivity and increase overtime expenses, often inflate CPH.

Indeed Flex can help businesses reduce external costs with its transparent pricing model and pre-verified talent pool. 

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Actionable strategies to optimise cost per hire

Optimising cost per hire doesn’t mean cutting corners. It’s about making smarter, data-driven decisions to improve recruitment productivity without compromising on quality.

Strategies to reduce CPH

  1. Adopt flexible staffing solutions: Get access to platforms that enable businesses to access pre-verified talent on demand, reducing reliance on traditional agencies.
  2. Encourage employee referrals: Referral programmes often result in faster hires and lower costs, as referred candidates are more likely to align with company culture.
  3. Invest in employer branding: A strong employer brand attracts qualified candidates, reducing the need for expensive advertising.
  4. Implement technology: Tools like Vendor Management Systems (VMS) centralise hiring workflows, improving operational effectiveness.

The role of analytics in reducing recruitment costs

Analytics play a pivotal role in identifying gaps and fine-tuning recruitment strategies. By analysing real-time data, businesses can make informed decisions that drive cost savings.

Benefits of advanced analytics

  1. Uncover shortcomings: Analytics reveal bottlenecks in the hiring process, such as delays in candidate screening or approval.
  2. Predict labour needs: Predictive analytics allow businesses to anticipate hiring demands, avoiding last-minute recruitment costs.
  3. Measure performance: Metrics like time-to-fill and cost per hire provide insights into the effectiveness of recruitment strategies.

Tracking and optimising cost per hire is the step towards improving recruitment efficiency and aligning hiring strategies with business goals.

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