Cost per hire (CPH) has become an important metric for measuring the success of an HR or recruiting team. In a post-recession economy, most companies are meticulous about where and how their dollars are spent and everyone wants to land the best talent without spending too much money.
CPH, however, can be misleading if you don’t take the right approach. Here are three things to remember when calculating the cost per hire, especially if that metric is used as part of a formal performance review process.
Make Sure You’re Including The Right Variables
The standard formula for calculating cost per hire is:
[Total External Costs] + [Total Internal Costs] / Total Number of Hires = Cost Per Hire
Simple and straightforward, right?
Not necessarily.
You must be certain that you are including the right data points into the total external and internal costs. Factors like ad placement, job fair participation, and employee referral bonuses are obvious, but you have to consider both the hard and soft costs of any candidate search.
External costs may include ad placement fees, drug screening and background check fees, job fair participation fees and costs, staffing firm fees, travel expenses, relocation fees, signing bonuses, etc. Internal costs can include items like employee referral bonuses, applicant tracking system costs, as well as the man hours of every employee and manager who engaged in screening resumes, conducting interviews and evaluating candidates; and the salary and benefits packages of the HR/recruiting team.
Failing to include soft costs will skew your final number, and will impact the ability to accurately measure success today and in the future.
CPH Should Never Stand Alone
Cost per hire is not the be-all-end-all of recruiting metrics. Every business should know its CPH, to be sure, but success should be measured by more than just that one factor. Lowering CPH is great, but do you know how to measure the ways in which lowered costs impact the business as whole?
For example, if you lower CPH, but you also lower quality of hire, you can’t claim success. When measuring the effectiveness of your HR/recruiting team, be sure to include a variety of metrics that paint a complete picture of success and efficiency, including:
- CPH
- Quality of hire
- Time-to-hire
- Ratio of interviews to offers
- Long-term retention rate
Don’t Compare Apples And Oranges
One of the difficulties that arise when you try to determine whether or not your CPH is high, low, or on the nose is the fact that every business is unique. Comparing your CPH to another organization – even if they are similar to yours in terms of products and services, location, size, and profit, is really comparing apples and oranges.
Because the formula for calculating CPH includes so many soft costs, and because you never know exactly what variables a competitor uses to calculate their cost per hire, it is a useless exercise to compare your company with anyone else’s.
In order to measure success, you must establish a baseline, create standards for your CPH formula, and apply those standards uniformly moving forward. This gives you a means of comparing success year over year, and along with the other important metrics discussed above, you can accurately evaluate your success.
If you are looking for talented professionals for your HR team, or if you are looking for innovative ways to control your CPH, contact the professional recruiters at Contemporary Staffing Solutions today. Our recruiters can help you develop strategies to build an efficient, effective team.