# Cost Per Hire: Ultimate Guide (Definition, Calculation & Uses)

15
Mar

The cost to onboard a new hire can become more expensive. If you have never estimated or analyzed how much your organization is spending on enlarging the company size or adding an employee to your particular team, you might be surprised. When you divide your spending and decisions metrics in the hiring process, you can easily create a hiring cost for a new employee that helps you make informed and intelligent decisions in the future.

In this blog, you will learn what cost per hire is, what a cost per hire formula is, how you can calculate this, why cost per hire matters to your business, etc.

## Cost Per Hire: Definition

The definition of cost per hire is exactly what you are thinking. Cost per hire refers to the average amount of money that a company spends on each new hire who is brought into their organization. While the concept to hire employees may be simple, adapting the knowledge about nuances requires a bit of a deeper dive. Not all costs of hiring are apparent until you take the time to break down the resources and work needed for posting a job, assessing applicants, and then finally, onboarding the recipient of the position.

## How To Calculate Cost Per Hire?

While this might seem like a lot of attention or considerations to keep in mind while doing a calculation, the good news is that once you have collected the various sources of spending, it would be simple to perform your analysis. So, how do you calculate the cost per hire? What is the formula to find your cost per hire? To know, follow the steps below:

Cost Calculation Formula/Cost Per Hire Formula:

• Firstly, you have to add up both internal and external costs of all new hires in a specific period.
• Then, you need to divide the resulting number by the total number of hires in that particular period.
• In the end, you will see the total hiring cost of onboarding a new hire.

In summary, the cost per hire formula is:

{(Total internal costs+ Total external costs) / The number of hires}

Your organization's cost per hire expenses is essential to know to reduce your total spending and for reffing the areas where you are spending your resources. One practical and critical use of cost per hire is isolated spending among a few different factors. When you do this, you can recognize areas where you can find winning candidates effectively and others where you are not much effective. You will find yourself in a position where you might either prefer to change the way you approach the latter, or you choose to cut funding to them altogether.

## How Do You Use Cost Per Hire?

Calculating a cost per hire is a worthwhile process if you take the information you collect and make sure to use it productively. When this is properly implemented, you can use cost per hire calculations to create a guide while allocating resources to recruiting agencies. Here, we are going to mention a few key steps that you should remember while calculating a cost per hire to get the most value out of the process.

### First: Figure Out Your Cost Per Hire

The more descriptive or detailed data you can gather on cost per hire, the more ways it will open for you. This means finding your entire costs and then itemizing that based on the different areas of spending. This information can be joined with additional recruiting metrics such as how many applicants you get from each method, where the successful applicants are coming from, and a few similar assessments.

### Second: Analyze The Results

With your descriptive cost per hire data, you can start comparing and contrasting, figuring out where your money is well spent and where you are wasteful in the specific recruiting process. Find areas where your recruiting cost per hire is higher and explore any causes for the lagging results.

### Third: Compare Across Multiple Departments

In addition to calculating a cost per hire based on many recruiting tools and methods, you may also compare the metric internally. If you have various departments, you should compare cost per hire stats by the department. You can quickly identify the most vital points from successful departments and then can apply those strategies to others. This will help you to improve a company's overall performance.

### Fourth: Research Industry Standards

A useful benchmark to access your results is one and only industry averages. While entire average costs in multi-industry studies or sources have yielded results in the low \$ 4,000s, there you can see the variations across business sizes and industries, so you must seek out data related or similar businesses if possible. You can compare the data between various competitors and research their hiring process. If their strategies inspired you, you must accept and then implement them into yours.

### Fifth: Apply What You Have Learned

When you are done with your analysis, you can start changes based on the cost per hire results and see what they say about your process. You need to adjust spending to focus on more beneficial recruiting sources, and you can trim costs wherever you find their excess.

## What Is A Recruiting Cost Ratio/Recruiting Cost Rate?

This formula calculates the overall cost of onboarding new talent. In short, the recruiting cost rate (RCR) estimates how much money an organization is spending on all the elements or fundamentals needed to search, attract, and hire a new employee to the company.

The formula to calculate Recruiting Cost Ratio/Recruiting Cost Rate is:

{Your external costs + Your internal costs / The total compensation of new hires * 100}

## Witness The Cost Per Hire Statistics In 2022

Here, we have the latest data to share about the cost per hire rates with you. Do not forget these statistics should not be described as right or wrong. However, this should be considered as a good benchmark. So, here we are going to mention cost per hire statistics in 2022:

• The average cost per hire is around £4425.
• It takes between 36 to 42 days to fill out the average role in the USA.
• HR professionals use approximately 15% of their expenses on recruitment (on average).
• Generally, it costs around 40% of an employee's salary to hire one new employee, including all the benefits.
• On average, it takes approximately 12 weeks for a new candidate to become used to and settled and to show overall productivity levels while working.
• In the USA, the median cost per hire is around \$1633. This shows us that there are some roles that require a lot more money to fill than others.
• Small businesses and organizations that have a considerable company size, as such between 100 - 999 employees spend, on average. Spends more than around \$1000 on every employee for training every single year.

## Conclusion

Analyzing data and crunching numbers can be an organization's worst nightmare. Being presented with figures that are too high (or too low) often prevents a company from keeping track. So the truth is, knowing your company's cost per hire allows you so much even more than accessing data. Thus, whenever you ask, 'is calculating the cost per hire worth the time and effort?’ our answer will always be - yes. I hope this blog will reach your requirements as we have taught or shared with you all the information regarding cost per hire.

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The entire cost to hire a new employee in the organization should include the expense of the recruitment process, travel costs, administrative fees, equipment, and benefits. It is a statistic that provides plenty of charges such as advertising, relocation fees, software, and others.

The addition of all recruitment expenditure divided by the number of hires in a given specific time period is a simple calculation for cost per hire.

Yes, salary is always included in the cost per hire. In reality, their performance bonuses, sourcing/recruitment employees, and benefits are also involved.

When there is an option to invest in your recruitment efforts, when you have the knowledge about a cost per hire, it allows you to make better and more effective strategic decisions. In other words, it offers an estimate of the cost of difficult-to-fill positions and includes the decision-making in hiring costs.

Following are the five key ways that you use to reduce cost per hire:

• You should Build Talent Pipelines In Advance.
• Social Media Recruiting.
• Internal Recruiting And Referrals.
• Using Right Assessment Tools will also help you to reduce hiring costs.
• Bulk Screening Via One Way Video Interview is also a way to reduce the cost per hire.