How to Determine Your Company’s Average Cost Per Hire

Due to the COVID-19 pandemic, making the right hire has become an even more crucial decision invoking anxiety and ultimately can significantly impact a company’s bottom line in this current climate. Some industries have seen a reduction in headcount, however other industries have increased hiring since the beginning of the year. With that involves HR departments navigating a talent pool that has become extremely competitive as the U.S. Bureau of Labor Statistics reported a 14.7% unemployment rate in May (up from 3.5% back in February). To help break through the unknown of hiring in this abnormal environment, our team has put together a guide to determine your company’s average cost per hire.

The standard cost-per-hire equation that’s used by the Society for Human Resource Management (SHRM) is the following:

However, identifying the specific external costs (such as third-party agency fees, advertising costs, and travel fees) and internal costs (employee salary, benefits, and fixed real estate costs for example) can get murky and cause some confusion.

SHRM also determined the average cost per hire across various industries was around $4,000; however, there are also variables to take into account for company size, industry, and what type of position is filled in this amount. For smaller companies, this amount could be closer to $7,000 and in some cases up to $20,000 depending on the level of positions that are hired in a fiscal year.

A larger company is more than likely using many external resources and has internal fixed costs that aren’t comparable to small or medium-sized companies, so we’ll focus more on small to medium-sized companies when trying to determine what to take into account for determining your average cost per hire.

External Costs

Advertising/Marketing

Aside from taking into account the obvious advertising costs on social media or through retargeting and paid search campaigns, one aspect to account for is the cost of materials created by your marketing team or agency used to attract candidates to your company.

Expenses to take into account: social advertising, SEO advertising, retargeting costs, job board expenses, job fair/recruiting event expenses, production of marketing material for recruiting.

Hiring Process

Any costs related to third-party agencies or RPO’s would fit in this category; however, if your company isn’t using an agency, also don’t forget to take into account the travel expenses. This includes expenses of candidates brought into the office and the travel expenses of recruiters for off-site interviews or job fairs.

Expenses to take into account: travel for the candidate and recruiters, technology costs, recruitment process outsourcing, third-party agencies

Onboarding

Once the candidate has been hired, be sure to include the candidate’s onboarding expenses in your average cost per hire assessment. This would also include the compensation for the employee referral is applicable.

Expenses to take into account: background checks, health screening, drug testing, employee referrals, candidate relocating, training/development

Internal Costs

Recruiting & Sourcing Staff

Keep in mind the salary, benefits, and bonuses of not just full-time employees in your recruiting and staffing departments, but also part-time employees and contractors. And any training or development costs (such as seminars, expos, etc.) for these teams would also be accounted for in this category.

Expenses to take into account: base salary, benefits, bonuses, training/development

Facilities

Office and capital expenses may be difficult to identify a hiring cost to, but a way to take into account this category is to take the percentage of the recruiting and staffing department headcount based on the overall office costs.

Expenses to take into account: the representative portion of office rent and capital

Time 

One area that is overlooked when determining a company’s average cost per hire is the investment of time put in by hiring managers and also the department that the hire would be joining. For example, a new digital marketing position is also going to involve members of the marketing team in the interview and selection process and take time from their day-to-day. A suggested way to determine this cost is to multiply the numbers of interviews done to an internal rate.

Expenses to take into account: Hiring managers’ time at recruiting events, during the recruiting process, and during interviews

Reveal Your True Cost Per Hire

The table at right provides a visualization of what is explained above using simulated figures. Additionally, we’ve created an Excel worksheet to help calculate and determine your company’s average cost per hire. Gather the information and then simply enter the numbers to get your average cost per hire.

Download Worksheet

If you have any questions or want to learn more, visit enamix.com or contact info@enamix.com to set-up a 30-minute call with one of our senior account managers who can walk you through this process.

cost-per-hire-table cost-per-hire-table

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