In these days of slow economics and budget restraints, one metric getting a lot of attention is Cost Per Hire (CPH). Just how much is it costing to hire great people? Figures vary widely, depending on the level of expertise, geographic location, industry type, the labor supply, and whether the recruitment is done internally or outsourced to a recruiter. The effectiveness of the hiring process, called Cost Per Hire, is defined as “hiring the best talent, in the shortest period of time, for the least external/internal expense.”
Cost Per Hire data may be used in a variety of ways, including benchmarking data, to compare with other companies, as a budgeting tool, or as a component of tracking and assessing the total cost of workforce turnover. For example, a 2010 study done by the National Association of Colleges and Employers found a 30% variation between the South and Central regions of the United States. They reported that, on average, it costs companies $8,947 per college graduate hire, an increase of over 50% from the previous year.
Cost Per Hire Internal (CPHI) is recommended for use inside of any organization that wishes to measure Cost Per Hire using a standard methodology. It is a management tool and not an accounting methodology.
CPHI= Sum(external costs) + Sum (Internal costs)
Total Number of Hires in a Time Period
The standard Cost Per Hire model being formulated by the Society of Human Resource Management (SHRM) and the American National Standards Institute (ANSI) includes expenses for advertising and marketing, background checks and eligibility to work expenses, campus recruiting expenses, contingency fees, consulting services, pre-employment testing, job fair expenses, relocation fees, sign on bonuses, and travel expenses. The standard may be available from SHRM as early as this fall. If you’d like to do the calculations using an automated system right now, there are many to choose from. Enter “cost per hire calculator” in your search engine.
It’s important to keep in mind that cost per hire is only one measure of recruitment success. It represents how much it costs to get someone in the door. The real cost per hire metric comes from how successfully the person performs the job. After the hire, I suggest that you also assess the quality of the hire by conducting surveys regarding performance quality and manager satisfaction.
Whether you calculate your costs manually or utilize a cost-per-hire calculator, it’s important to understand how much your hiring process is costing your business and to set goals to make improvements. These costs are quite often hidden or ignored and can have a significant impact on your profitability.
Blog Authored by: Jeanne Hines, SPHR