Recruitment processes are not always cheap! Between job ads, recruiter fees, onboarding time, and lost productivity as job offers stay open, hiring can drain your HR budget fast.
That’s why calculating your cost per hire is essential to understand what you’re really spending… and where you can save!
In this article, we’re breaking down the methods to calculate your cost per hire, as well as the best practices to reduce hiring costs in your organization.
What is Cost Per Hire?
Cost per hire is the total cost associated with hiring a new employee. It includes both internal costs (like recruiter salaries and work hours) and external costs (like job board fees, agency commissions, etc.).
Here is the formula you need to use:
Cost Per Hire = (Internal Costs + External Costs) ÷ Number of Hires
For instance, if you spent $50,000 total on recruitment last year and hired 25 people: $50,000 ÷ 25 = $2,000 per hire.
Sounds straightforward, right? Well, not entirely: if you want to get a more accurate calculation of your cost per hire, you need to consider the cost of new hire onboarding and training in your internal costs. The way you view your results is also influenced by new hire retention rates.
Continue reading to get more details about the actual costs that need to be taken into account in your calculation!
What Costs Should You Include in Your Calculation?
Internal Costs
- HR or recruiter salaries (proportional to hiring time)
- Interviewer time (managers, team members)
- Software/tools used (ATS, HRIS, assessment platforms)
- Onboarding and training resources
External Costs
- Job board/posting fees (LinkedIn, Indeed, etc.)
- Recruitment agencies or headhunters
- Background checks or pre-employment tests
- Career fairs or employer branding events
If you need a basis of comparison, the average cost to hire a new employee in Canada is approximately $4700. Of course, the numbers vary depending on your company’s size and industry.
7 Tips to Reduce Hiring Costs
Cutting recruitment costs doesn’t mean cutting corners. Here are tips to save money on recruitment without compromising your candidate experience and quality of hire:
1. Invest in an ATS (Applicant Tracking System)
Manual processes and scattered information are costly when it comes to recruitment. Handling resumes by email or using Excel to keep track of candidates simply won’t cut it in the long run.
Companies that want to improve recruitment efficiency and reduce hiring costs should invest in recruiting solutions such as Applicant Tracking Systems. The benefits are numerous and essential to save on recruiting costs:
- Faster time-to-hire: Automated workflows mean less time lost looking for information, sending emails or booking interviews.
- Fewer hiring errors: Better screening and tracking = better candidates. ATS often use keyword searches, automated resume parsing and candidate matchmaking features to improve your decision-making.
- Lower new hire turnover: A structured and professional process improves candidate experience and employer branding, thus reducing the likelihood of losing your newly hired talent.
- Reduced reliance on external recruitment: By building your own recruiting pipeline, you can gain autonomy and save on external recruitment costs.
How does it translate to actual savings for your company? A good recruitment platform like Folks ATS can save thousands per hire when you factor in faster fills, fewer bad hires, and reduced administrative hours. You can find out more about the return on investment (ROI) of an ATS right here.
2. Improve your job descriptions
Clear, compelling, and targeted job descriptions attract the right candidates faster, reducing time-to-hire and the need for expensive and long-running job ads.
To stand out from competitors, you should use your own signature voice and format. Remember to build a clear list of requirements and responsibilities associated with the role, and to highlight employee benefits and key components of your company culture. Potential candidates need to know right away if the job fits their profile, and what they would gain from joining your company.
Here are some elements you need to consider when writing an effective job description:
- The company’s needs and goals and how the open position supports them.
- The job title and associated responsibilities (they need to be clearly outlined and aligned with your goals).
- A summary of your company’s mission, culture and values to attract culture-fit candidates.
- Must-haves must be differentiated from nice-haves when listing qualifications and skills.
- Benefits and work conditions should be clearly highlighted in your job posting.
3. Create an internal referral program
Did you know that referral programs often bring better-fit candidates and lower churn? The numbers don’t lie: 62% of organizations with referral programs reduce their time-to-hire and see 70% higher new hire retention.
Of course, there needs to be structure and incentive when it comes to your internal referral program. For instance, you should offer bonuses or perks to employees who recommend great talent. Remember to effectively communicate how referrals work to all your employees; they might bring in the next best addition to your team!
4. Build a talent pipeline
A great way to reduce recruitment costs is to create a pool of qualified candidates before you need them. This approach reduces the pressure (and cost) of last-minute recruiting.
In order to build a talent pipeline, you can invest in sourcing, build strategic succession planning strategies to anticipate hiring needs, and rely on centralized applications collected in your Applicant Tracking System.
5. Use free or niche job boards
If you want to save on your recruitment costs, you need to look beyond traditional LinkedIn candidate searches. Depending on your needs and industry, niche sites can yield higher-quality candidates at a lower cost. You can also check out provincial job boards and local employment centers.
Another great way to reduce recruitment costs is to build a solid social media presence and an attractive employer brand. This way, you can benefit from inbound candidates (talent who apply to your job postings because they love what your company does and actively follow you) and potentially save time and money on recruitment processes.
6. Streamline interviews
Structured job interviews save time and reduce drop-offs and backs-and-forths. First of all, you should train HR of hiring managers to ensure they implement an effective interview and selection strategy. Then, ensure that all the following aspects are taken into account:
- People participating in the interview and selection process (supervisor, HR manager, recruiter, etc.).
- Steps to complete in the selection process (number of interviews, tests to undertake, information and documentation needed, etc.).
- Efficient job interview questionnaire including questions on soft and hard skills, past experience, culture-fit and professional ambitions.
- Job interview scheduling features and automated communication with candidates to ensure quick responses and better candidate experience.
- Streamlined selection new hire onboarding process to speed up administrative tasks and integration into the new team.
7. Track recruitment analytics
Recruitment analytics are key to reduce costs and optimize strategies. Track your recruitment KPIs to spot hiring bottlenecks, drop-off points, and underperforming channels. It will help you adjust your strategy based on what actually works (or doesn’t!).
Your KPIs can be found on your recruitment platform and accessed at any time, and you can build customized reports to focus on trends that matter most to your business. With effective tracking of recruitment analysis, you can save time and money and improve your overall candidate experience!
Knowing your cost per hire empowers you to make smarter hiring decisions and optimize your recruitment processes. It all starts with more efficient tools and strategies! So if you are currently using spreadsheets and sticky notes to track hiring… it might be time to upgrade. Folks ATS gives you the visibility, automation, and efficiency you need, without breaking the bank. Request your free demo today!
Need more tips & tricks to reduce cost per hire and make the best hiring decisions?
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