Effectively measuring, analyzing, and improving HR metrics is not as easy as it may seem. Cost-per-hire (CPH) – the average cost associated with sourcing, recruiting, and hiring a new employee – is a popular metric, yet it is often misunderstood and misused, in part because so many factors go into the calculation.
CPH is a helpful metric when, and only when, it is used properly. To ensure that you are using this metric to your organization’s benefit, follow these three must do’s:
#1: Use a complete formula. Organizations often exclude important factors from their calculations. Calculating CPH is a simple formula, but it does take time and diligence to properly compute. To ensure that your CPH is accurate, be sure to include all of the hard and soft costs that are internal and external to your company:
External Costs
- Career fair and campus recruiting costs
- Advertising fees – job boards, radio ads, social media, etc.
- Candidate assessments, background checks, drug tests, etc.
- Third party fees and expenses – outsourced recruiters, placement firms, etc.
- Travel expenses for recruiters and candidates
- Relocation fees and sign-on bonuses
Internal Costs
- Recruitment and sourcing team salary and benefits
- Screening time and cost (management staff time engaged in interviews)
- Recruiting learning and development
- Applicant tracking system (ATS) costs
- Employee referral payouts
- Federal and state employer statutory costs related to internal staff
After gathering the above information, calculate the number of direct new hires (including full-time, part-time, and temporary) for that same time period. Then determine the sum of internal and external dollars expended to the total number of new hires – or in formula representation:
Cost Per Hire = External Costs + Internal Costs / Total Number of New Hires
#2: Use CPH hand-in-hand with other HR metrics. While CPH is an important metric, it does not paint a full picture of an organization’s recruiting abilities. Many organizations strive to achieve a low CPH without examining the impact on the organization. Having the right scorecard of key metrics can help you pinpoint the balance between quality and efficiency.
CPH is valuable alongside other HR metrics, such as quality of hire, time-to-fill, interview-to-offer ratio, and retention rate. This will provide a well-rounded perspective on performance from your internal recruitment team and outsourced partners.
#3: Refrain from comparing to others. CPH varies drastically from one business to another depending on a number of factors, including skills sought, industry, and size of company. Plus, another organization may be using different factors in their calculation. Rather than comparing your CPH to another company, or a national average, compare your own CPH year over year (or period over period).
To accurately review, consistency is key. Use the same factors (see formula above) each time you make your calculation. Measure CPH on a regular basis to gauge how it is fluctuating with time. It’s important to understand that the CPH will change. As your company acquires new software or tests new advertising methods, your CPH will be affected. An increasing CPH is not necessarily a reflection of poor performance; it should be relative to the value that the new employees are bringing to the company.
When leveraged properly, metrics are powerful. As you review this quarter’s CPH, take the time to reevaluate and adjust your HR metric scorecard. Every quarter offers a new opportunity to measure your cost-to-value relationship and refine your metrics to drive success.
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