For every recruitment process that goes on in an organization, there are some costs that the recruiter bore on each prospective candidate until selection. It becomes important for recruiters to analyze costs using a crucial strategic tool to evaluate the effectiveness and efficiency of the hiring process, pinpoint areas for development, and assist set your budget for hiring.
Cost-per-hire is a term used to represent the whole cost incurred in the process of hiring a new employee for a company. It comprises every expense related to filling a post, including advertising costs, event costs, software costs, tools, travel expenses, administrative costs, benefits, and hiring management fees. It is one of the most crucial recruitment and hiring metrics.
Cost-per-hire can be used to calculate compensation for both internal transfers and promotions inside an organization as well as for new workers brought in from the outside. The size of the business, the seniority of the position that needs to be filled, and the potency and effectiveness of internal recruiting are all determining factors and affect the cost per hire.
The average cost per hire is determined by adding up all hiring costs (internal and external) and dividing the total by the number of hires made over a certain period (Society for Human Resource Management- SHRM, 2012).
Cost per hire = TIC +TEC / TNH
TIC: Total internal costTEC: Total external costTNH: Total number of hires
Internal cost contains internal resources and expenditures required for staffing efforts throughout the relevant period. Examples of internal expenses include the recruiting team's complete salary and perks, equipment and stationery, and fixed expenses like physical infrastructure (talent acquisition system costs, etc.).
External cost includes all outside sources of funding for recruiting efforts throughout the relevant period. Examples are third-party agency fees, advertising expenses, job fair expenses, tests (psychometrics, aptitude, work sample test, etc.), and travel expenses incurred throughout the recruiting process e.t.c.
The total number of hires includes the number of hires made overall during the period being assessed.