Cost Per Hire (CPH)

Cost Per Hire is a foundational metric for any organization aiming to build a scalable and efficient recruitment process. It helps businesses understand the full financial scope of their hiring efforts, which can be influenced by various factors such as the industry, company size, and the specific role being filled. For example, hiring for executive or highly specialized roles often results in a higher CPH due to the extensive search and longer timelines required.

CPH is composed of two main categories of costs: internal and external.

Internal Costs are those expenses that come from within the organization. These can include:

• Salaries and benefits for the internal recruitment team, including recruiters, "sourcers", and HR staff.

• Overhead costs related to recruitment activities, such as rent, utilities, and equipment for the HR or recruitment function.

• Employee referral bonuses paid to existing staff for successful candidate referrals.

• The monetary value of time spent by non-recruiting employees, like hiring managers or other team members, on activities such as interviews and resume reviews.

• Costs associated with internal recruitment technology and software, like Applicant Tracking Systems (ATS) and other HR platforms.

• Training and development costs for the recruitment staff.

External Costs are expenses paid to outside vendors or services. These costs include:

• Job board fees for posting advertisements.

• Fees paid to external recruitment agencies or headhunters.

• Costs for recruitment marketing and advertising campaigns on social media or other platforms.

• Candidate expenses, such as travel, accommodation, and relocation fees.

• Fees for third-party services like background checks, drug tests, and pre-employment assessments.

• Costs for attending or hosting job fairs and career events.

• Sign-on bonuses for new hires.

The accuracy of the CPH metric depends on meticulously tracking both hard and soft costs. While "hard" costs like job board fees are straightforward, "soft" costs, such as the time spent by hiring managers, can be more challenging to quantify but are essential for a precise calculation. For a more complete picture, some organizations also include onboarding and training expenses in their CPH calculation.

Tracking CPH consistently over time allows an organization to identify trends, pinpoint inefficiencies in the recruitment process, and measure the impact of strategic changes, such as adopting new recruitment software or refining interview policies. A high CPH might indicate an inefficient process, but it can also simply reflect the cost of pursuing highly sought-after talent.

Challenges and Best Practices A common challenge with CPH is ensuring all costs are accurately captured, especially the hidden or "soft" costs. Neglecting these can lead to a significant underestimation of the true cost of hiring.

Best practices for managing and improving Cost Per Hire include:

• Leveraging technology: Implementing an Applicant Tracking System (ATS) can streamline the hiring process, reduce administrative tasks, and automate expense tracking, leading to lower costs and increased efficiency.

• Encouraging employee referrals: Referral programs are often one of the most cost-effective ways to source new talent, as they can significantly reduce external advertising and agency fees.

• Strengthening the employer brand: A strong employer brand can attract a larger pool of qualified candidates, reducing reliance on expensive external channels and lowering hiring costs.

• Optimizing job descriptions: Clear and effective job descriptions can attract more relevant applicants, which can streamline the screening process and reduce the time and effort needed to find a suitable candidate.

• Improving the candidate experience: A streamlined interview process with quick feedback cycles can reduce the time-to-hire and associated costs.

• Focusing on retention: High employee turnover necessitates frequent hiring, which directly increases the overall CPH for an organization. By investing in retention, companies can save on future recruitment costs.

While lowering CPH is a valid goal, it should never come at the expense of a quality hire. A cheap and quick hire who is a poor fit can end up costing the company more in the long run through low productivity and further turnover. Therefore, it is important to analyze CPH in conjunction with other metrics, such as Time-to-Hire and Quality-of-Hire, to get a holistic view of recruitment success.