HR's Guide to Cost-Per-Hire Metrics

Do you know how much you spend per hire?

Most companies are trying to find a way to cut costs and save money - especially in industries that were hit particularly hard by the pandemic.

Cost-per-hire (CPH) is a crucial metric that HR managers and employers often should take a close look at in the recruiting process. At its best, it can help managers and employers look deeply at their recruiting return-on-invest and make strategic decisions about how to improve it, where to re-invest and where to reduce investment.

Further, being able to objectively look at these costs can help businesses determine from an economic or financial standpoint where to invest in retention because you may find that certain roles are much more costly to hire.

This will be a guide to cost-per-hire calculations and related considerations. Want to compare payroll solutions? Read our Gusto vs Rippling guide to learn more.

What is CPH? Why can it be important for companies and how does it impact HR/metrics?

It’s a mathematical formula that helps a company determine how much it costs to hire someone new which can be critical for future projections and retention calculations.

Industry benchmarks give us an estimate but the range is still quite broad. For example:

• SHRM estimates $4,129

• Bersin estimates $4,000

While other estimates recommend:

• 16% of the annual salary for a role under 30K annually

• 20% of the annual salary for a role under 75K annually

What’s the formula for calculating CPH?

CPH = (Internal Recruiting Costs + External Recruiting Costs) Total number of hires

What is an internal recruiting cost?

Internal recruiting costs can include:

• Recruiter salaries

• Interview costs

• Set-up costs

• Development and training costs

• Referral bonuses or incentives

What is an external recruiting cost?

External recruiting costs can include:

• External agency or recruitment fees

• Software costs

• Recruitment or career fair fees

• Job board fees

• Relocation or signing bonus costs

• Assessment and testing costs (including aptitude assessments, drug testing, background checks, etc.)

What is the total number of hires?

This depends on who is considered an employee or hire. This typically includes employees who started as temporary or seasonal but transitioned to full-time work, and contractors who are on the payroll with a term limit of more than one year.

This doesn’t typically include internal transfers, external consultants, external contractors, employees of third-party companies or employees who were brought in under a merger or acquisition.

What about additional CPH metrics?

The Recruiting Cost Ratio (or RCR) uses the first year of compensation for calculations. The formula is: (External Hiring Costs + Internal Hiring Costs) / Total first-year compensation

Ultimately, there are advantages and disadvantages of using the cost-per-hire metric. For one, it’s not a hard and fast rule. There may be some hires that are much lower cost because of the nature of the work or skill; there may be highly-specialized or senior roles that are much more costly. However, broadly, using CPH - although time-consuming on the surface - can help track and improve your recruiting ROI so that you can continue to invest in areas that give you the best outcomes.