As recruitment budgets get slimmer and competition for talent gets fiercer, we’re all looking for practical ways to understand, calculate, and above all — reduce our cost per hire.
If you're ready to demystify your recruitment budget and discover practical ways to get more out of your hiring process, you’re in the right place.
In this guide, we'll share a simple cost per hire formula anyone can use, plus real ways to reduce your recruitment costs while scoring the best new employees for your company.
What we’ll cover
- What is cost per hire? And how to calculate it
- 10 practical ways to reduce your cost per hire
- Get more out of every hire
Cost per hire: A simple definition for growing companies
Cost per hire, or cost of hire, is a recruitment metric used to measure the expenses associated with making a new hire for your company. From advertising the open position and running background checks to internal time costs and onboarding fees, there is a range of “hard” and “soft” expenses that can contribute to your total cost of hire.
How to calculate cost per hire
To calculate your cost per hire (CPH), find the sum of your recruitment costs for a specific time period and divide it by the number of hires made.
Here’s the formula for calculating your cost per hire:
Cost per hire = (Internal recruiting costs + External recruiting costs) / Total number of hires
For example, if you spend $2,000 in one month to hire two people, your CPH would look like this:
$2,000 / 2 = $1,000 cost per hire
Internal vs. external recruiting costs
With the average cost per hire sitting somewhere around $4,700, minimizing your cost per hire is a great way to improve the ROI on your recruitment process. But calculating your cost per hire isn’t just about tallying up the total cost of your job ads.
"Of those costs, I would say 30 percent to 40 percent are hard costs, and the other 60 percent are soft costs," said SHRM Foundation chair-elect, Edie Goldberg.
To make a tangible difference with your cost per hire, you need to know exactly where that money goes — including the hard external costs like hiring a specialist recruiter and the soft internal costs, like ramp times for new hires.
Here are some common recruiting expenses that could factor into your total cost per hire:
Internal costs:
- Compensation for HR and recruiting staff
- Time cost for hiring manager
- Operational expenses
- Compliance costs
- Training and upskilling
- Onboarding costs
External costs:
- Job advertising
- Job fairs
- Digital marketing campaigns
- University partnerships
- Recruitment consultants
- Employee referral fees
- Employee relocation expenses
- Immigration expenses
- Health screening costs
- Drug testing
- Pre-screening services
- Background checks and eligibility verification
- Signing bonuses
- Candidate travel costs
- Recruiter travel expenses
- Recruiting software
- Recruiting agency fees
10 practical ways to reduce your cost per hire
Your cost per hire is more than lines on a spreadsheet. This handy recruitment metric tells you how efficient your hiring process is by shining a light on any excess recruitment expenses or untapped opportunities.
Generally, a lower cost per hire signifies a more efficient process. But as with every hiring KPI, you’ve got to consider the context. For example, if your total cost of hire is $200 but your quality of hire is also low, it might be time to up your recruitment budget in the name of better overall ROI.
Whatever your situation, these practical strategies can help lower your cost per hire without sacrificing candidate quality.
1. Use talent assessments
Talent assessments are often used as pre-employment checks in the later stages of the recruitment process, such as final interviews and candidate selection.
From work samples to behavioral interviews, these data-driven assessments are designed to objectively evaluate an individual’s knowledge, skills and potential, minimizing your risk of wasting money on a bad hiring decision.
2. Invite candidates for an onsite meet-and-greet
When it comes to the interview process, lengthy evaluations and repetitive meetings can add up fast — both in time and money.
More employers are embracing the meet-and-greet interview as a way to break through the “best behavior” barrier and get real insight into a candidate’s personality. Done well, these less formal get-togethers can replace multiple rounds of interviews with multiple team members and allow all of your point people to gather together at one place and time.
3. Retain your top performers
Another so-obvious-you’ll-miss-it tip for lowering your cost of hire? Retain your top performers so you don’t have to hire.
To keep your office superstars from looking for greener pastures, review your employee benefits to make sure you’re offering the right perks. Regular performance reviews combined with anonymous employee surveys are also great tools to keep your finger on the pulse of your existing workforce.
4. Focus on your best sources of hire
When it comes to recruitment, not all sources are created equal.
If you want to lower your cost per hire, start by pinpointing which recruitment sources actually work for your business. For example, if you take a look at your analytics and notice that you’re pouring money into Facebook ads, but your best applicants come from LinkedIn, it may be time to adjust.
5. Take advantage of niche job boards
Want to attract premium talent in less time?
Instead of sifting through hundreds of candidates to find your diamond, try casting a smaller net via niche job boards.
Niche boards cater to professionals within a specific industry or function, letting you zero in on super-skilled candidates in a fraction of the time. The result is better, faster hires and more money in your pocket.
6. Add a career page to your website
Another easy way to lower your cost per hire is to cut out the middleman and boost your own employer brand, starting with a five-star career page.
A customized career page gives candidates one central place to get to know your brand’s culture, values and job opportunities. You can even take it a step further by optimizing your job postings for search. This single step makes it much easier for candidates to discover your openings organically and helps reduce your reliance on expensive third party sources.
7. Create an employee referral program
If you want top-quality hires without the price tag, an employee referral program is a must.
By incentivizing your team to refer top talent, you can bypass the high cost of external hires by turning your existing team members into after-hours recruiters. With their firsthand knowledge of the company, employees understand what it really takes to work for your company and can make authentic pitches to potential candidates.
This not only improves the quality of hire, it also reduces your reliance on traditional job ads, leading to increased cost savings and ROI.
8. Keep your talent pipeline engaged
To reduce your cost per hire, look for new ways to keep your talent pipeline warm.
Even when you're not actively hiring, a well-maintained pipeline can help you create a backlog of best fits, making it easier (and cheaper) to fill those vacant positions when the time comes.
Whether you stay in contact with stellar runner-up candidates or maintain a strong relationship with past team members, engaging your candidate database can help you tap into a pool of motivated talent that can’t wait to get started.
9. Move recruiters to a pay-per-hire model
Recruiters are a vital part of the hiring process, but if you want to lower your cost per hire, it might be time to rethink the way you pay them.
By moving recruiters to a pay-per-hire model, you can reduce your total cost per hire while encouraging a focus on quality. Alternatively, you could look for ways to restructure your recruiter bonuses around other productivity metrics, like quality of hire or candidate experience.
10. Optimize your recruitment funnel
Probably the most strategic way to lower your cost per hire is to lean in and optimize your recruitment funnel.
With a well-defined framework for which actions to take at which stages of the process, you can streamline your recruitment, quickly weed out unqualified applicants, and spend more time with your best candidates.
By taking the time to audit your current recruitment funnel, you can also identify costly bottlenecks and remove unnecessary steps to save time and resources.
Get more out of every hire with Breezy
If you’re not already using an applicant tracking system (ATS) to streamline your recruitment, now’s the time to start. With one user-friendly platform for all things hiring, you can automate candidate texts and emails, automatically post jobs to all the top job boards, and even build your own careers site.
Breezy is the candidate-friendly applicant tracking system that helps you make the most of every hire round with features designed to save you time (and money 😉).
From coordinating candidate interviews to using AI to screen candidates faster, start lowering your cost per hire today with a free 14-day trial.
