Everything you need to know about cost per hire

Last updated:
December 15, 2020
December 19, 2021
min read
Ingrid Stommer
Table of contents

When you’re on a recruitment team, you play an essential role in the success of your company. The job candidates that you choose to hire should possess all the desired qualities you’re seeking out so that they can make a meaningful contribution to your business. Because finding qualified candidates is so crucial to a company’s success, recruitment teams should be sure to use the right metrics and strategies to optimize the hiring process.

One of the most meaningful metrics that recruiters must utilize is the average cost per hire. This powerful metric is critical to the success of every recruitment process. To discover how to calculate cost to hire and use it to your advantage, here is everything you need to know about the cost of onboarding a new hire.

What is cost per hire?

Cost per hire is a recruiting metric that enables recruiters to properly manage all of their costs throughout the hiring process. In the simplest terms, the cost to hire refers to all of the investments that a business makes in an effort to bring new employees to the organization.

Like all recruiting metrics, cost per hire allows a recruitment team to accurately measure its hiring success and evaluate the effectiveness of the recruiting process. However, what sets cost per hire apart from other metrics is its ability to let recruiters plan for the company’s financial success by tracking hiring expenses. Recruitment teams can therefore use the cost of onboarding a new hire to determine whether their organization has the financial resources to optimize the hiring process.

Relevant expenses

There are a multitude of expenses involved in the average cost per hire. When calculating how much it will cost to fill an open job position, recruiters should carefully evaluate all relevant expenses to prepare their hiring strategy. These expenses may include any of the following:

  • Advertising expenses
  • Equipment costs
  • Recruitment software fees
  • Travel expenses
  • Administrative costs
  • Employee benefits

Each of these elements is a critical aspect of the overall recruiting process. As such, it’s imperative that recruitment teams take them into consideration while calculating the cost of onboarding a new hire.

Each of these elements is a critical aspect of the overall recruiting process. As such, it’s imperative that recruitment teams take them into consideration while calculating the cost of onboarding a new hire.

Being properly prepared throughout the recruitment process can help your company maximize its profits and prevent serious financial losses from occurring.

Key determinants

No matter what type of organization you run, there are a number of key factors that influence your company’s total cost per hire. First, it’s important to understand the different types of hiring costs that a recruitment team can evaluate.

The two main costs of hire are internal and external costs. Internal costs deal with promotions or transfers that take place within the company, while external costs involve candidates that are recruited from outside the company. When assessing the various expenses associated with the recruitment process, be sure to take both internal and external costs into account. This can ensure that you accurately identify the total cost of onboarding a new hire at your company.

In addition, the size of your company plays a central role in the cost per hire that you calculate. The more employees you bring into your organization, the higher the costs will be. Similarly, be sure to think about the seniority of the position that you’re trying to fill. The level of expertise that is expected from each new hire determines many aspects of the recruiting process, such as the types of resources you’ll need and the necessary amount of training.

Quality of the recruitment process

Before any company sets out to calculate the average cost of onboarding a new hire, it should take the time to evaluate its current recruitment process. If an organization’s recruiting strategy is inherently flawed in some way, it may face a much higher cost per hire that can severely undermine the business’s hiring efforts. It’s therefore crucial for recruitment teams to actively work on their hiring processes and adjust them whenever necessary. Being proactive and making changes is one of the most critical components of success and proper preparation.

Moreover, one of the most important qualities of any recruiting strategy is efficiency. When you can find as many qualified candidates as possible while losing as little money as you can manage, you can set your business up for success. Your company’s total cost per hire therefore depends on the efficiency of your hiring process. Always think about how you can improve the process while utilizing fewer resources each time in order to achieve the results you want.

Calculating the cost of onboarding a new hire

Once you’ve adjusted your hiring strategy and taken all of the relevant factors into account, you can begin to calculate the average cost per hire. First, be sure to identify all internal and external recruiting costs and place them in two separate categories. Internal costs may include talent acquisition team salaries, interview costs, recruiting software expenses and learning and development costs.

External costs, on the other hand, might include advertising expenses, travel expenses, temp agency fees, technology costs, job fair expenses and background check costs. These are just some examples of internal and external recruiting costs, so make sure you include all relevant expenses when determining the cost of onboarding a new hire.

The formula for cost per hire is fairly straightforward. Start by adding up the total internal and external costs involved in your recruiting process. Next, divide this sum by the total number of new hires at your company during any given time period. The resulting quotient is the cost per hire during that time frame.Before calculating the cost to hire, decide whether you wish to identify the total or average cost. While it’s more common to calculate the average cost per hire, there may be certain situations in which it’s more appropriate to determine the total cost. Remember to include all full-time, part-time, temporary and permanent employees when evaluating the total cost to hire to ensure that the result is accurate.

The importance of calculating cost per hire

Determining the cost per hire at your organization is vital for a number of reasons. The most fundamental reason is that you need sufficient financial resources to find the talent that your company needs. If you fail to invest the right amount of time and energy in your recruiting efforts, it reflects poorly upon your business and you may miss out on some highly qualified candidates.

Furthermore, taking the time to develop your recruiting strategy properly gives you the opportunity to attract more employees. If you aren’t equipped to offer competitive benefits or adequate vacation time, job candidates are likely to choose a different business that has a more fully developed recruitment process. Keep this in mind when forming your recruitment strategy to make sure it attracts the right people.

Using cost per hire to your advantage

The cost of onboarding a new hire influences nearly every aspect of your company. If you want to achieve success and hire employees that are equipped to make a difference, it’s well worth your time to calculate and assess the average cost per hire. Not only can learning how to calculate cost to hire enable you to bring in more qualified candidates, but it can also boost the overall reputation of your business and strengthen it in the long run.

Get the MidWeekRead
Get the exclusive tips, resources, and updates to help you hire better!
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Share on FacebookShare on TwitterShare on Linked In
Go to the top

Hire better, faster, together!

Bring your hiring teams together, boost your sourcing, automate your hiring, and evaluate candidates effectively.