Cost Per Hire

What is Cost Per Hire?

Cost Per Hire is the total cost incurred by an organization to recruit and hire a new employee. This includes expenses such as advertising, recruitment agency fees, interview costs, background checks, and employee referral bonuses, divided by the number of hires made during a specific period.

How to Calculate Cost Per Hire?

Calculating Cost Per Hire (CPH) is an important step for evaluating your recruitment process. This figure helps to measure how much an organization spends to recruit a new employee. It involves adding up various hiring expenses and dividing them by the number of hires made.

Let’s break down the steps.

Step 1: Identify All Recruitment Costs

The first step in calculating Cost Per Hire is to list all expenses related to the hiring process. These costs can vary depending on the methods used for recruitment. Some common categories include:

• Advertising Costs: Expenses from posting job openings on job boards, social media, or company websites.
• Recruitment Agency Fees: Payments made to staffing agencies for candidate searches or job placement services.
• Interview Costs: Travel expenses, meal allowances, and time spent by staff interviewing candidates.
• Background Check Fees: Charges related to verifying a candidate’s credentials, employment history, or criminal background.
• Employee Referral Bonuses: Any incentives given to current employees for referring successful candidates.
• Recruitment Software or Tools: Costs related to job boards, applicant tracking systems, and other recruitment platforms used.

These are the main cost categories to include in your calculation. Don’t forget to add any other expenses specific to your organization’s hiring methods.

Step 2: Calculate Total Recruitment Costs

Once you’ve identified all the recruitment costs, add them up to get the Total Recruitment Costs for a specific period. This total should include every relevant expense, whether it’s for one hire or several hires. It’s helpful to track these costs on a monthly or quarterly basis, depending on the volume of hires.

For example:

• Advertising: $2,000
• Agency Fees: $5,000
• Interview Costs: $500
• Background Checks: $300
• Referral Bonuses: $1,000
• Total Recruitment Costs = $2,000 + $5,000 + $500 + $300 + $1,000 = $8,800

Step 3: Count the Number of Hires

Next, count how many hires were made during the same period that you tracked costs. This could be monthly, quarterly, or yearly, depending on your needs. For example, let’s say your organization hired 10 people in the same period.

Step 4: Divide Total Costs by Number of Hires

To get your Cost Per Hire, simply divide the Total Recruitment Costs by the number of hires.

For example:

• Total Recruitment Costs = $8,800
• Number of Hires = 10
• CPH = $8,800 ÷ 10 = $880

So, the Cost Per Hire for this period would be $880.

Step 5: Interpret the Results

Now that you have the CPH, it’s time to interpret what it means. If the number is higher than expected, it could indicate inefficiencies in your recruitment process. Conversely, a lower CPH may suggest cost-saving measures that are effective, though it’s important to consider quality in addition to cost. Sometimes, spending more on recruitment can lead to better-quality hires who remain with the company longer, which is a win for overall recruitment strategy.

Step 6: Adjust Your Recruitment Strategies

Use the CPH as a tool to improve recruitment. If your cost per hire is too high, look for ways to reduce expenses. This could involve switching to more cost-effective advertising platforms, reducing reliance on recruitment agencies, or improving your interviewing process to reduce time spent per candidate.

What is the Average Cost Per Hire?

The average cost per hire in the United States varies significantly based on factors such as industry, role, and company size.

Here’s a summary based on the available data:

Average Cost Per Hire Overview

1. National Average:
   • The national average cost per hire in 2022 was approximately $2,700 according to the Saratoga Workforce Index .
   • Another source, the Society for Human Resource Management (SHRM), reports an average cost per hire of around $4,700

1. Industry Variations:
   • Technology & SaaS: Approximately $5,000.
   • Healthcare: Ranges from $3,000 to over $6,000.
   • Legal: About $4,000.
   • Education: Ranges from $2,000 to $5,000.
   • Retail: Between $1,000 and $3,000.
   • Finance and Banking: Between $4,000 and $8,000.
   • Construction: Ranges from $2,500 to $5,000

Summary of Average Costs by Industry

Industry	Average Cost Per Hire
Technology & SaaS	$5,000
Healthcare	$3,000 to $6,000
Legal	$4,000
Education	$2,000 to $5,000
Retail	$1,000 to $3,000
Finance and Banking	$4,000 to $8,000
Construction	$2,500 to $5,000

The average cost per hire can range from approximately $2,700 to $4,700, with significant variations depending on the industry and specific job roles. Understanding these costs can help organizations make informed decisions about their recruitment strategies and budget allocations.

What is the Average Cost Per Hire of Remote Latin American Professionals?

The average cost per hire for remote professionals from Latin America varies significantly based on the specific role, experience level, and country.

Here’s a summary based on the available data:

Average Cost Per Hire for Remote Latin American Professionals

1. General Salary Expectations:
   • Entry-Level Positions: Salaries typically range from $9,600 to $19,200 annually.
   • Mid-Level Positions: Salaries range from $30,000 to $35,400 annually.
   • Senior-Level Positions: Salaries can range from $40,000 to $82,740, with some reports indicating salaries up to $84,012 for specialized roles.
2. Hourly Rates:
   • Average hourly rates for remote professionals in Latin America are generally between $10 and $55, depending on the skill set and experience level. For example:
     • Software developers can earn between $24,000 to $100,000 per year, translating to hourly rates of approximately $10 to $50+.
     • Community Managers and similar roles may command hourly rates around $15 to $25.
3. Cost Comparison with U.S. Professionals:
   • Hiring remote talent from Latin America can save companies significantly compared to hiring in the U.S. For instance:
     • A U.S.-based software developer might earn over $100,000, while a Latin American counterpart might earn less than one-fourth of that amount.
     • For a content manager role, U.S. salaries range from $70,000 to $126,000, while in Latin America, they range from $24,600 to $30,000.
4. Recruitment Costs:
   • Recruitment expenses in Latin America are generally lower than in the U.S., with costs for job ads and agency fees being more manageable. For example, the average cost-per-click for job ads on platforms like Indeed is significantly lower in countries like Mexico compared to the U.S.

Internal and External Costs Commonly Associated with Cost Per Hire

When calculating the Cost Per Hire (CPH), it’s crucial to consider both internal and external costs. These expenses encompass different aspects of the hiring process, from the in-house work involved to the external services used to find the right candidates. Understanding these costs can help improve the recruitment process, ensuring you get the best value for your hiring efforts.

Internal Costs: Expenses Within Your Organization

Internal costs are the expenses associated with your organization’s internal resources and efforts used during the hiring process. These costs often include the following:

Recruitment Team Salaries

One of the most significant internal costs is the salary of your recruitment team. This includes the compensation of in-house recruiters, HR personnel, and any staff who assist with the hiring process. Whether full-time or part-time, these salaries contribute to your overall hiring expenses. These costs can be calculated by factoring in the amount of time spent on recruiting and dividing by the number of hires made during the period.

Interviewing and Onboarding Costs

Conducting interviews involves a range of activities, from scheduling to preparing interview questions to coordinating interviewers. The costs here also include the time spent by employees participating in the interview process. If you have a lengthy or complex interview cycle, this time quickly adds up. Additionally, onboarding costs, including employee training, welcome materials, and technology setup, should be accounted for as well.

Hiring Technology and Tools

Another internal cost is the software and tools used to support the recruitment process. This includes applicant tracking systems (ATS), recruitment management software, and job board subscriptions. These tools are necessary for keeping track of applicants and streamlining the hiring process, but they come with subscription fees and maintenance costs.

Employee Time Spent

Besides the recruiters, other employees may be involved in the hiring process, such as managers, team leaders, or department heads. Their time spent reviewing resumes, conducting interviews, and collaborating with the recruitment team also contributes to the overall cost. While indirect, it’s important to factor in these additional time costs to get a more accurate picture of CPH.

External Costs: Expenses Outside Your Organization

External costs are those related to third-party services and resources that help you attract and hire candidates. These costs are often more visible and variable, depending on your recruitment strategies.

Recruitment Agencies and Headhunters

If you work with external recruitment agencies or headhunters, their fees are a significant external cost. These agencies typically charge a percentage of the candidate’s salary or a flat fee for their services. The cost can vary based on the agency’s reputation, the type of position being filled, and the level of service provided. Agencies are often used to fill senior or specialized roles, which can come with higher fees.

Job Ads and Listings

Posting job openings on job boards, industry-specific platforms, and social media channels can be expensive, especially if you’re advertising on high-traffic sites. Popular job boards like LinkedIn, Indeed, and Glassdoor charge for job postings, and the costs can vary based on the visibility and length of the ad. In addition, niche job sites or paid ads on social media channels often add more to the cost.

Background Checks and Pre-Employment Testing

Background checks are often required to ensure candidates meet the necessary legal and company standards. These checks can involve criminal records, employment history verification, and even credit reports, depending on the nature of the job. Similarly, pre-employment tests, such as skills assessments or personality evaluations, add to the cost. External vendors often provide these services for a fee, depending on the level of testing required.

Employee Referral Programs

Employee referral programs offer financial incentives to current employees who recommend successful candidates. These referral bonuses can vary depending on the role being filled and the agreement within the company. While these costs may seem internal, they are still considered external in nature because they involve third-party referrals outside your HR team.

Why Knowing Both Internal and External Costs Matters

Having a complete understanding of both internal and external costs gives you a more accurate representation of your Cost Per Hire. By identifying which areas you are spending the most on, you can make more informed decisions about where to allocate resources.

For example, if external recruitment fees are high, you might explore ways to improve your internal recruitment processes to reduce reliance on agencies. Similarly, tracking internal costs helps you evaluate whether your team’s time is being used efficiently or if there are ways to optimize the process.

By regularly reviewing these costs, you can find areas to improve and ensure that your recruitment process remains both efficient and cost-effective.

How to Use the Cost Per Hire Metric

The Cost Per Hire (CPH) metric can be a valuable tool for assessing the efficiency of your recruitment process. It helps you see how much you’re spending to bring in new talent and can guide future recruitment decisions. But how do you actually use this data? Below, we break down practical steps and ways to leverage CPH in your hiring process.

1. Analyze Recruitment Effectiveness

CPH gives you a clear snapshot of how effective your recruitment process is. By regularly tracking this metric, you can compare your costs over time, identify trends, and determine whether certain changes in your hiring approach lead to higher or lower costs.

Example:

If you notice that your CPH is steadily rising over the past few months, it might be worth looking into whether your sourcing methods or recruiting channels have become more expensive. You could experiment with different platforms or hiring strategies to see if they bring down costs.

2. Compare Against Industry Benchmarks

Every industry has its own average cost per hire. By comparing your CPH with industry standards, you can evaluate whether your spending is on par with competitors. If your cost per hire is higher than average, it could signal that you need to reassess your hiring strategies.

Example:

If your CPH is significantly higher than other companies in the same industry, you may want to evaluate the channels or agencies you’re working with. It might also suggest that you’re over-spending on particular recruitment services, which could be adjusted.

3. Optimize Your Recruitment Budget

Knowing your CPH helps you manage your recruitment budget effectively. If you’re spending more than you should, tracking this metric allows you to identify where the budget is going. Maybe you’re paying too much for job postings, recruitment agencies, or background checks. With CPH data, you can allocate resources more effectively and adjust where necessary.

Example:

Suppose your recruitment costs for an executive position are consistently high. Using the CPH data, you could allocate more budget for other roles and look for ways to reduce costs when filling senior positions, perhaps by using in-house recruiters or leveraging employee referrals.

4. Assess the Impact of New Recruitment Channels

When you try new recruitment channels, you can use CPH to assess their effectiveness. Tracking your cost per hire before and after adopting a new method, like a job board or social media platform, will give you insights into how these changes are affecting your bottom line.

Example:

If you started using LinkedIn ads for recruiting and notice a significant jump in your CPH, it could be a signal to test alternative platforms. On the other hand, if your CPH decreases, you might decide to allocate more budget to that channel for future hires.

5. Identify Areas for Improvement

CPH data can pinpoint areas where your recruitment process could be improved. For example, if the cost of sourcing candidates is high, it may indicate a need for more efficient sourcing methods or better targeting of job ads. This can help you determine where your process is getting bogged down and where changes can be made.

Example:

If you’re spending a lot on external recruiting agencies, it might be worth considering whether it would be more cost-effective to invest in building a stronger internal recruitment team or using less expensive methods like employee referrals or job fairs.

6. Measure the ROI of Recruitment Tools

Many companies use a variety of recruitment tools, such as applicant tracking systems, job boards, and candidate screening platforms. With CPH, you can calculate the return on investment (ROI) for these tools. By evaluating your cost per hire in relation to the effectiveness of each tool, you can decide whether it’s worth keeping them or exploring cheaper alternatives.

Example:

You may find that using a certain job board results in more successful hires but at a higher cost. Comparing the CPH across different platforms allows you to decide which tools offer the best return on your investment.

7. Track Hiring Trends Over Time

Tracking your CPH over time provides valuable historical data. By monitoring fluctuations, you can learn about seasonality, trends in hiring costs, or shifts in candidate behavior. Over time, this will help you spot patterns that inform future hiring strategies.

Example:

Perhaps your CPH increases during the holiday season when hiring tends to pick up. Understanding these patterns can help you plan your budget for busy hiring months or optimize your recruitment methods during slower months to save on costs.

8. Improve the Candidate Experience

A high cost per hire may sometimes indicate a lengthy, inefficient recruitment process. If candidates are dropping off due to a complicated or slow process, you could be wasting resources. By improving the candidate experience and shortening time-to-hire, you may reduce your CPH.

Example:

A complicated interview process or long hiring cycle could increase your cost per hire. If you streamline the process and improve communication with candidates, you may see a reduction in both time-to-hire and cost per hire.