On my previous blog post, I had mentioned that hiring mistakes can be expensive. I would like to expand on that further. There are different cost elements involved in hiring a candidate. It is important to know what those are and how to calculate the cost. 
The average cost to hire is the total amount we spend on recruitment divided by the total number of hires made in a yearThe cost per hire depends on several factors. For example, the industry, the size of the company, the hiring process, the skill level of the position hired.
  • Salaries of the HR/Hiring Manager/Recruiter is an important cost element. The pay of the person spending time on the recruitment process is a direct cost to consider. It can be the HR team member, a hiring manager, or an assistant. Let us estimate how many hours per hire are they spending on job posting, interviews, conducting background checks etc. If you have standard repeatable processes, then they will spend less time on each hire. They might spend an hour or two in drafting a job description and posting on the job boards. Another three hours in reviewing resumes. The interview process might take about four to five hours. Then comes negotiating and sending the job offer. All these will add up to say twelve hours of the HR or the hiring manager’s time. Add their wage rate times twelve hours to the cost of hiring.
  • If you reward employees for referring a candidate then add the referral bonus paid to the cost of hire.
  • If you have an internal recruiter, then add the recruiter’s commissions to the cost of hire.
  • Do you pay signing bonuses and reimburse for relocation costs to your key hires? If that is the case, do not forget to add these costs to the list as well.
  • In some cases, you may want to calculate the cost of the office space [rent and utilities] used for interviews and hiring process. We do not always think about these costs. But these add up over a period of time and can be a significant part of the total cost. 
  • Do you need to buy new computer, phone, safety gears etc. for the new hire? And what about software licenses, access to websites? Are there costs associated with extra licenses or access?
  • Fees paid to recruitment agencies you engage.
  • The costs of advertisements on job boards for posting the job. 
  • If you participate in career fairs, on-campus recruitment events, do not forget to add the costs. There will be indirect costs like travel expenses for the participating team. 
  • We talked about using selections tests and tools. There are costs associated with such tools. 
  • You would typically outsource the background check activity and involve a third-party to do it for you. So there will be costs associated with it.

It is a good practice to calculate your cost to hire at least once a year. The cost depends on the position and skills we are hiring. But there are some other factors to keep in mind. Volume of your hires in a year is important to bring your cost per hire down. And if you hire for the same type of role, you’ll be able to refine your procedures over time. Standard, repeatable processes will boost your efficiency. And efficiency in processes lowers the cost to hire. 

In some situations, the search for a suitable candidate can drag on for much longer than usual. This could apply to a technical or specialized role or to roles that are in-demand. In such cases, the competition or duration of the search will drive costs up.
Cost per hire is a good indicator of how much you are spending. It is also an important reminder to use a robust hiring practice, as you would not want to make an incorrect hiring decision 
Yet, you have to make sure you are investing into an all-encompassing hiring process so you can get top talent. In a competitive market to attract talent, you have to consider all the costs associated with recruitment as an investment. Calculating the cost will help you create a hiring budget. Such budgets will help you further focus your recruiting investment to the type of role you are trying to attract.

If you need help with your recruitment process, please contact us for a free consultation.