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Running on a Budget: How To Calculate Hiring Cost 

 

As a leader, you know that top talents could cost an organisation a fortune. Owing to this reason, having knowledge about your cost-per-hire in the recruitment process is crucial.

Understanding cost-per-hire

Cost-per-hire (CPH) is vital for business return-on-investment (ROI), while it is not the only measurements to calculate ROI. To measure that you have made a good investment, there are other factors you need to consider such as the quality of applicants, estimated time of an employee staying in the organisation, as well as talents’ impact on employer brand.

According to Workable, CPH is very intriguing because it lets you know the amount of money you spend on bringing in new hires. The metric of your spending can also be used to measure or track your future recruiting budget, resulting in a thrifty company expenditure. As an example, if you plan to hire 100 people in a year, and your cost-per-hire is US$4,000, thus, you can estimate a total spend of US$400,000 for recruiting. You can compare the annual cost per hire over several years to spot any significant changes. 

How to calculate CPH 

To save money and hire better, it is smarter to be well informed about your cost-per-hire. Calculating CPH is not so difficult. You only need to understand these two points. 

  • Your hiring cost last year, including paid sources, HRIS systems, recruiting events, hiring service, background check service, and everything that is related to your hiring process. 

  • The number of candidates you hire last year. 

The CPH formula is as follows: 

(Internal recruiting costs + External recruiting costs) / total number per hires 

For example, as you calculate everything, your overall CPH was US$75,000 for hiring 50 new employees with US$40,000 for internal hiring and US$35,000 for external hiring. 

Hence, your cost-per-hire is (US$40,000 + US$35,000) / 50 = US$1500

You spent approximately US$1500 for every candidate you hire last year. This year, you can cut the cost for everything that you don’t need or probably add more budget to your hiring process when needed. 

What you should include in your recruiting budget

As stated above, you can either cut or add budget to your hiring process. When doing that, you should carefully jot down a detailed list of possible recruiting costs. The list can help you get accurate spending plan. 

You should include job board fees, candidate assessment costs, external recruiter expenses, employer branding efforts, careers page costs, internal recruiter’s costs, and any other expenses related to recruiting like referral program bonuses, travel reimbursements, ATS cost, etc. into your list. 

Next read: How to Strengthen Your Digital Recruitment Strategy

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