Cost Per Hire (CPH) is a metric commonly used in recruiting and HR, which stands for the amount of money spent for hiring one candidate for a company, both externally and internally. This metric can be utilized to gauge both the cost of hiring a candidate within the company and to estimate the cost per hire for a specific position. The external expenses for recruiting a new employee may include recruitment agency fees, advertisement expenses, and recruitment events cost. Otherwise, internal expenses imply the salaries of your recruitment team, the company’s recruitment software, and the money spent on referral programs. So, the formula for calculating cost per hire is:
CPH = (Internal+ External Expences)/Amount of Candidates
There are several factors that impact CPH which include:
- Source of recruitment (social media, personal referral, job boards, etc.)
- Time spent to fill the position (time-to-fill)
- IT recruitment agency fee
- Company size
- Type of industry
The Society for Human Resource Management calculated the average cost per hire across all industries at nearly $4,700 and executive cost per hire at $28,300 for the year 2022. In fact, the IT industry has the highest CPH rates due to the global tech talent shortage of candidates and increased demand for narrowly specialized software developers. Thus, many tech companies turn to IT recruitment agencies to accelerate the hiring process, as they already have a candidate database and expertise in talent acquisition. The recruitment agency fee normally equals 15-20% of the first-year salary of specialist or up to 25-30% for positions that require unique technical skills. You can take advantage of our software team cost calculator to count the approximate pricing of hiring an IT specialist within the IT recruitment service provider.
Keeping track of the average cost per hire is critical for a number of reasons:
- Planning budget - It will help the management team estimate the amount of money needed to hire a software developer and plan the company’s expenses accordingly.
- Assessing the efficiency of a recruitment team - The significant growth of the CPH metric may tell that the recruitment team is using the wrong strategy for hiring candidates or struggling to attract tech specialists.
- Identifying the best hiring tools - By keeping a record of cost per hire you can single out the most effective tools among all the job boards, advertisement channels, and referral programs.
- Benchmarking - Comparing the company’s CPH with other competitors is needed to adjust the strategy for winning in the competition and adapt the best tools for your hiring process.
Yet it’s vital to prioritize quality over cost, even when it implies paying more to acquire the best talents. This particular strategy is more likely to result in long-term success. What I mean by that is an increase in cost per hire compared to the previous year may not be a negative sign if it means investing in better recruiters, exclusive job boards, or an Applicant Tracking System to raise your hiring to a new level. There is no doubt that the benefits of these investments will outweigh their costs.
And one last thing to mention - cost per hire is just a single aspect of the larger set of metrics. While it can be helpful, the entire recruitment quality assessment shouldn't rely on only this factor. Instead, businesses should identify the most appropriate metrics like time-for-hire, time-to-fill, quality of hire, offer acceptance rate, and many others to comprehend the entire situation.