How to Reduce Your Company’s Cost-Per-Hire

In the world of talent acquisition, Cost-Per-Hire (CPH) is a hot topic for many talent acquisition professionals who are grappling with the challenge of delivering top-quality hires with limited resources. The scarcity of qualified candidates, coupled with an increasing number of specialized roles, has further exacerbated the situation.

However, the good news is that by leveraging the right data and analytics, talent acquisition teams can gain greater control over their recruitment costs and develop effective strategies that boost the quality of their hires while reducing overall expenses. By tracking CPH, companies can identify inefficiencies in their hiring process and optimize recruitment efforts to get better results with less investment. This way, they can stay ahead of the competition in the talent war without breaking the bank.

What is the Cost Per Hire?

Cost per hire (CPH) is a measure organizations use to determine the amount of money spent on acquiring new talent. It encompasses all the expenses incurred in the hiring process, such as advertising, recruiting, screening, interviewing, and onboarding costs. To calculate CPH, the total fees associated with recruitment are added up and then divided by the total number of new hires.

CPH is a critical metric for organizations as it enables them to assess the effectiveness and efficiency of their recruitment process. By analyzing CPH, companies can identify areas of improvement in their recruitment process, reduce the cost of hiring, and streamline their recruitment efforts. CPH can also forecast recruitment budgets, enabling companies to allocate resources more efficiently.

How to calculate your company’s cost per hire?

To calculate your company’s cost per hire (CPH), you need to consider all the costs associated with your recruitment process, including advertising, recruiting, interviewing, screening, and onboarding expenses.

Here is a step-by-step process to calculate CPH:

  • Determine the time frame: Decide on a specific period for which you want to calculate CPH. It could be a month, quarter, or year.
  • Identify the cost categories: List all the cost categories associated with the recruitment process, such as job postings, job fairs, recruiting software, background checks, and employee referral programs.
  • Determine the cost for each category: For each category, identify the total cost incurred during the specified time frame. For instance, if you spent $5,000 on job postings in a quarter, the cost for this category would be $5,000.
  • Calculate the total recruitment cost: Add up the costs for all categories to get the total recruitment cost for the specified time frame.
  • Determine the number of hires: Count the number of new hires made during the specified time frame.
  • Calculate the cost per hire: Divide the total recruitment cost by the number of new hires to get the cost per hire.

The formula for calculating CPH is:
Cost per hire = (Total recruiting expenses + Total advertising expenses + Total referral expenses + Total relocation expenses + Total signing bonuses + Total agency fees + Total travel expenses + Total interview expenses + Total onboarding expenses) / Number of new hires
By calculating CPH, you can evaluate the effectiveness of your recruitment process, identify areas of inefficiency, and optimize your hiring strategy to reduce costs and improve the quality of your hires.

Why are the cost-per-hire metrics important?

The cost per hire (CPH) metric is an important tool for organizations to evaluate the efficiency and cost-effectiveness of their recruitment process. CPH allows companies to identify areas of improvement in the recruitment process, allocate resources effectively, and measure the return on investment (ROI) of recruitment efforts.
By tracking CPH, organizations can identify the most cost-effective sourcing channels, streamline the hiring process, and optimize their recruitment budget. CPH can also be used to forecast recruitment costs and allocate resources more effectively.

Moreover, CPH can help organizations evaluate the ROI of their recruitment efforts by comparing the cost of hiring to the value the employee brings to the company. This information can be used to make data-driven decisions about the most effective recruitment strategies and channels.

By analyzing CPH over time, organizations can also identify recruitment trends and adjust their strategy accordingly. This can help companies stay ahead of the competition in the talent war and attract top-quality hires without breaking the bank.

How to reduce Cost Per Hire

There are several methods that can lead to a decrease in CPH.
These effects vary by industry, occupation, or location of business.

Below is a list of the top strategies you can choose to reduce your costs.

01. Digitization and automation of your recruitment processes

The use of free online tools, professional HR technology, and AI to improve recruitment processes and lower costs is becoming increasingly popular among HR professionals. Implementing the right tools can help to automate and streamline certain activities.

For instance, online face-to-face interviews can save time and money by allowing your teams to conduct interviews with a larger pool of candidates in a shorter amount of time while eliminating the need for travel.
In addition, there are a variety of HR tools, recruitment software, and onboarding solutions available that can increase the efficiency of your recruitment process, leading to long-term cost savings.

02. Leverage referrals from your current employees

One way to reduce the time-to-hire for an open position is to ask your existing employees if they know of someone who would be a good fit. This approach eliminates the need for a lengthy search process and allows you to proceed directly to the interview stage. It’s also a good idea to encourage employees to share your job postings and offer incentives for referrals that result in quality hires. This can help generate enthusiasm and interest in bringing new talent on board.

03. Create a pool of talented individuals that you can leverage in the future

Creating and maintaining a talent pool is an essential strategy for businesses to stay ahead in the recruitment game. A talent pool is a database of potential candidates who have expressed interest in your company, even if there are no current job openings.

Building a talent pool involves several steps. First, you need to identify and engage with potential candidates through various channels, such as social media, job fairs, and networking events. Next, you should capture their contact details and relevant information about their skills, experience, and career goals.

Once you have a talent pool, you can use it to fill future job openings quickly and efficiently. You can also engage with potential candidates to build a relationship and keep them interested in your company. By nurturing your talent pool, you can create a pipeline of qualified candidates and reduce your time-to-hire.

04. Recruit via Social Media

One way to potentially reduce cost per hire is to leverage social media for recruiting. By utilizing social media platforms like LinkedIn, Twitter, and Facebook, you can reach a larger and more diverse pool of potential candidates. This can help you save on traditional recruiting methods like job postings on paid job boards or in newspapers.

Social media recruiting can also help you target specific demographics, industries, or skill sets by using hashtags and keywords in your job posts. In addition, it can provide an opportunity for candidates to learn more about your company’s culture and values before applying, potentially reducing turnover rates and associated recruitment costs.
By adopting a social media recruitment strategy, you can increase your employer’s brand awareness and potentially reduce your cost per hire while improving the quality of your hires.

05. Hire a Recruitment Agency

Outsourcing recruitment services to an agency can be a cost-effective option when you consider the expenses involved in the hiring process. In fact, utilizing the expertise of recruitment consultants can even help you save money. Here’s how:

Recruitment agencies have access to a large database of talented candidates, which enables their recruiters to find suitable candidates much faster than your HR department can.

The recruitment agency also has a pool of pre-vetted candidates who have already been assessed for their qualifications and suitability for different job roles. This can save your organization a lot of time and resources.

Recruitment consultants at these agencies are experts in the field and have in-depth knowledge about the target market, top talents, and both active and passive candidates. They can provide you with valuable insights on how to make better hiring decisions based on this knowledge.

06. Automate the review process

The early stages of the recruitment process, specifically resume screening, can be time-consuming and mundane. Reviewing a stack of candidate resumes manually is not only time-consuming but can also be costly if someone else is handling the task. Therefore, it’s natural to explore ways to streamline this process.

Automating the resume screening process is the most effective way to optimize this stage of recruitment. Using online screening software can help you identify qualified candidates in just a matter of minutes, complete with comparative rankings. By automating this otherwise tedious task, you can save a significant amount of time and money on manual labor costs.

07. Create strategies to reduce employee turnover

To minimize turnover rates, consider exploring potential employee development opportunities and identify eligible internal candidates who may benefit from them. Encourage managers to regularly review employee goals to stay up-to-date with their interests in lateral or vertical moves within the company. This approach will not only help you tap into existing talent but also create a positive work environment where staff feels valued and listened to.

Additionally, to increase employee satisfaction and reduce recruitment costs, design benefits, and perks packages that cater to their needs. Even simple benefits like offering flexible work hours or occasional work from home can have a significant impact on employee retention. For instance, investing in higher-coverage insurance may seem expensive at first, but it can prove to be cost-effective in the long run by retaining valuable employees.

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