Understand and calculate recruitment costs, including cost per hire, and how to budget for these costs. The article emphasizes the importance of considering both internal and external costs, and offers a standard formula for calculating cost per hire. It also provides benchmarks for cost per hire and recruiting costs, and outlines the elements to include in a recruiting budget.
Nikoletta holds an MSc in HR management and has written extensively about all things HR and recruiting.
Here are frequently asked questions and answers about recruiting costs to help you plan your budget, monitor your cost per hire and optimize your spending:
What is cost per hire?
Cost per hire is the average amount of money you spent on making a hire. This metric is useful when you are creating or tracking your recruiting budget. For example, if you plan to hire 100 people in a year, and your cost per hire is $4,000, you can estimate a total spend of $400,000 for recruiting. You can compare annual cost per hire over several years to spot any significant changes.
How do you calculate cost per hire?
The Society of Human Resource Management (SHRM) collaborated with the American National Standards Institute (ANSI) to create a standard formula for calculating cost per hire (CPH):
(Note: all of these variables should refer to the same time period.)
Internal recruiting costs are organizational costs and internal expenses, like recruiters’ salaries and money you spend on your referral program.
External recruiting costs refer to every expense you pay outside of your company, like job board fees, agency fees and costs associated with a background check service.
What’s a good benchmark for cost per hire?
A recent survey by the Society of Human Resource Management (SHRM) found that the average cost per hire is just over $4,000. This number is the average across all the companies SHRM surveyed.
However, several factors may affect each company’s individual average. For example, cost per hire depends on hiring volume. The more people you hire, the lower your cost per hire will be. This is because some fixed costs can be spread out over a larger number of hires. Also, some roles and industries (e.g. engineering) have longer time to fill and the accumulated costs of a longer hiring process result in higher costs per hire.
Depending on the size of company and industry, a good benchmark is a value between $3,000 and $5,000.
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Recruiting costs depend on each company’s needs. A good way to approach recruiting costs is to begin by creating a detailed budget while keeping your average cost per hire in mind. Afterwards, measure recruiting costs using a spreadsheet or an Enterprise Resource Planning (ERP) system that tracks expenses and ensures they don’t exceed budgeted amounts.
It’s best not to obsess over recruiting costs. If higher costs translate into better people for your team, your investment is worthwhile.
What should be included in a recruiting budget?
Think about what you usually spend on recruiting. Creating a detailed list of possible recruiting costs will help you create an accurate spending plan. Here’s a list with common elements to include in a recruiting budget:
Job boards fees. What you pay job boards to display your job openings.
Candidate assessment costs. Fees for companies that offer pre-employment tests or coding challenges.
External recruiter expenses. Money spent to pay individual recruiters, recruiting agencies or staffing firms.
Employer branding efforts. Funds spent on events related to recruiting, like campus recruiting days and careers fairs.
Careers page costs. Expenses that include the setup, maintenance and redesigning of your careers page.
Internal recruiters’ costs. Often the highest recruiting line item, this includes recruiters’ salaries, benefits and travel expenses.
Also add any other expenses related to recruiting, like referral program bonuses, travel reimbursements for candidates and Applicant Tracking System (ATS) costs.
How do I calculate my recruiting budget?
You can calculate your recruiting budget in two ways:
Use your average cost per hire. Calculate it by adding the actual recruiting expenses from last year and divide by the number of hires you made. Then, multiply your average cost per hire by the number of hires you plan to make this year.
Add all projected internal and external costs. For example, imagine you plan to hire 50 people next year. If you decide that you need 50 job listings on three different job boards, you can multiply each job board’s fee by 50 and then add all three numbers to get the total projected cost of job boards.
What’s a good benchmark for a recruiting budget?
Use your cost per hire as a benchmark for your recruiting budget. If your industry’s average cost per hire is $3,000, try to keep your own around this value. Don’t let a higher cost per hire scare you though. It might mean you’re investing more in effective recruiting techniques. If your quality of hire and other metrics are consistently strong, your investment is worth it.
Cost per hire is the average expenditure incurred in making a hire. It's a useful metric for planning and tracking your recruitment budget. For instance, if your cost per hire is $4,000 and you plan to hire 100 people in a year, you can estimate a total recruitment expenditure of $400,000.
How is cost per hire calculated?
The Society of Human Resource Management (SHRM) and the American National Standards Institute (ANSI) have developed a standard formula for calculating cost per hire. This formula involves adding up all the costs of hire (internal and external) and dividing that sum by the number of hires in a certain time frame.
What are the components of recruiting costs?
Recruiting costs can be internal or external. Internal costs are organizational costs and internal expenses, like recruiters’ salaries and money spent on your referral program. External costs refer to every expense paid outside of your company, like job board fees, agency fees, and costs associated with a background check service.
What is a good benchmark for cost per hire?
A recent survey by SHRM found that the average cost per hire is just over $4,000. However, this number can vary based on several factors such as hiring volume, the role, and the industry. A good benchmark for cost per hire is between $3,000 and $5,000, depending on the size of the company and the industry.
How is a recruiting budget calculated?
A recruiting budget can be calculated in two ways: using your average cost per hire or adding all projected internal and external costs. For example, if you plan to hire 50 people next year and need 50 job listings on three different job boards, you can multiply each job board’s fee by 50 and then add all three numbers to get the total projected cost of job boards.
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