How to calculate your true cost per hire

Calculating the true cost per hire can be a complex and challenging task for HR departments. Yet, it’s a crucial metric for measuring the efficiency and effectiveness of the recruitment process. By understanding the true cost of hiring, companies can identify areas for improvement and make data-driven decisions to optimize their recruitment strategy. In this blog post, we will discuss the key factors that contribute to the cost per hire and how to calculate it accurately.

Direct Costs: Direct costs refer to the expenses incurred by a company to attract, screen, and hire candidates.

These include:

  1. Job Advertising Costs: The cost of placing job ads on various job boards, social media platforms, and other recruiting channels.
  2. Recruiting Fees: The fees paid to recruiters or staffing agencies for finding and screening candidates.
  3. Background Checks: The cost of conducting pre-employment background checks, drug tests, and other assessments.
  4. Travel Expenses: The cost of travel and accommodation for candidates who attend on-site interviews.
  5. Hiring Bonuses: The cost of signing bonuses or other incentives to attract top talent.

Indirect Costs: Indirect costs refer to the expenses that are not directly associated with the hiring process but are still incurred as a result of hiring a new employee.

These include:

  1. Training Costs: The cost of providing orientation, onboarding, and ongoing training to new hires.
  2. Productivity Loss: The cost of lost productivity during the onboarding process as new employees ramp up to full productivity.
  3. Manager Time: The time spent by hiring managers, HR staff, and other employees in the recruitment process.
  4. Administrative Costs: The cost of paperwork, background checks, and other administrative tasks associated with hiring.

To calculate the cost per hire, add up all the direct and indirect costs associated with filling a specific job opening and divide by the number of hires. For example, if the total cost of hiring is $50,000 for 10 hires, then the cost per hire would be $5,000.

Understanding the true cost of hiring is essential for optimizing recruitment strategies and improving ROI. Companies can use this metric to benchmark their performance against industry standards and identify areas for improvement. By reducing the cost per hire, companies can save money, improve the quality of hires, and increase overall efficiency.

In conclusion, calculating the true cost per hire is an essential step in optimizing recruitment processes. By factoring in all the direct and indirect costs associated with hiring, companies can gain valuable insights into their recruitment processes and make data-driven decisions to improve performance.

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