Cost Per Hire

Cost Per Hire: Definition and Explanation

Cost per hire (CPH) is a crucial recruitment metric that measures the total cost incurred by an organization to hire a new employee. 

The CPH includes all direct and indirect costs involved in the recruitment process, such as advertising, sourcing, screening, interviewing, background checks, and other administrative costs.

CPH is an essential metric for any organization as it allows them to measure their recruitment cost effectiveness. By analyzing this metric, organizations can identify areas where they can optimize their recruitment processes and reduce hiring costs.

How Do You Calculate Cost Per Hire?

To calculate CPH, organizations need to add up all the costs involved in the recruitment process, including both direct and indirect costs. 

Direct costs include job advertising, employee referral bonuses, recruitment agency fees, candidate travel expenses, and relocation costs. Indirect costs include time spent by recruiters, HR personnel, and hiring managers on recruitment activities and other administrative costs.

The formula to calculate CPH is:

CPH = (Total Recruitment Costs / Number of Hires)

For example, if an organization spent $50,000 on recruitment activities and hired ten employees, then the CPH would be:

CPH = ($50,000 / 10) = $5,000

Therefore, the CPH for this organization is $5,000 per new hire.

What is a Good Benchmark for Cost Per Hire?

The benchmark for CPH can vary based on the industry, company size, location, and recruitment methods. However, a good benchmark for CPH is generally considered to be between $3,000 to $5,000 per hire. 

If the CPH is higher than this benchmark, it may indicate that the organization is spending too much on recruitment activities or that their recruitment processes are not efficient.

It's essential to note that a low CPH doesn't necessarily mean a high-quality hire, as organizations should also consider other metrics such as time to fill, retention rates, and overall employee satisfaction.

Conclusion

Remember that cost per hire is a vital metric for any organization to measure their recruitment cost effectiveness. To calculate CPH, organizations need to add up all the costs involved in the recruitment process, including direct and indirect costs. 

A good benchmark for CPH is generally considered to be between $3,000 to $5,000 per hire. By analyzing this metric, organizations can identify areas where they can optimize their recruitment processes and reduce hiring costs while maintaining the quality of hire.