We all know by now that recruiting new employees is difficult and expensive. But in practice, it is still difficult to calculate the actual costs of hiring. This is a shame, because it is an important metric in talent acquisition and its optimization. We will tell you how to calculate this correctly.
Definition Cost per hire
Before you can determine whether your Cost per Hire is high, average, or low, we first need to agree on the definition. So here it is:
The Cost per Hire (CpH) is a summary of all costs incurred by your organization in a given period to attract new employees, divided by the number of actual hires.
Costs for recruiting new employees
CpH (in period X)= _____________________________________
Number of hires
The Society for Human Resource Management wrote a standard for this in 2012. But if you don't have the time (or inclination) to read through those 50 pages, you're better off reading our summary:
What exactly does the CpH cover?
Roughly speaking, we can divide the costs into two types: internal and external costs.
Internal: the costs that ensure that the recruitment process runs smoothly.
• Salary costs for the Recruitment team and, in part, for HR, Marketing, and any other departments involved;
• Costs for workspaces and other facilities for Recruitment;
• Devices such as computers, telephones, and meeting equipment;
• Software such as ATS systems, MS Office, BI software, etc.;
• Bonuses for referring new colleagues (referral).
External: expenses paid to organizations or professionals for their contribution to the recruitment process or onboarding.This can vary greatly, but here are a few examples:
• Recruitment fees from secondment agencies, headhunters, etc.;
• Costs for recruitment and HR events;
• Advertising and marketing costs (job boards, social media advertisements, etc.);
• Digital agencies (websites, consulting, design, etc.);
• Costs of assessments.
Once you have a clear overview of these costs, you can start making the calculation.
Calculate your CpH in 3 steps
1. Choose a suitable period, preferably a calendar year
For a fair calculation, choose a period that is representative and long enough. By taking at least a full calendar year, you will get an overview of the trends and, for example, the costs that are only incurred once a year (such as a large event or annual subscription costs).
2. Add up the internal and external costs
Bundle the above cost items in the selected calendar year. This will give you the total Hiring Costs.
3. Divide the hiring costs by the number of hires
How many people were hired during the same period? Decide for yourself whether or not to count people who leave during their probationary period as 'hires'.
And voilà, you have correctly calculated the CpH of the organization (or department) for a specific period! If you repeat this for other calendar years, you will also gain insight into the trend within your company.
Download our calculation example in Excel and get started right away.
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