Cost Per Hire (CPH) is one of the most common HR metrics used to measure recruiting effectiveness. That’s because it’s insanely simple to calculate – just add up your total recruiting costs and divide them by number of new hires for a given period.
CPH shouldn’t be used in a vacuum, though, as it doesn’t measure length of time to fill positions or quality of hire. It can also vary wildly across positions based on their function and/or seniority level (wining and dining an executive is a lot different than hiring a candidate through Monster.com).
Formula: Cost Per Hire (CPH) = Sum of total internal and external costs / Total number of hires
Remember: your CPH should be specific to a time period (annual, quarterly, previous six months, etc.), so your costs and new hire counts need to be aligned. Also, new hires should include part-time and contract/temporary workers as well.
Internal costs include:
- Salary (plus benefits) of internal recruiting staff
- Expenses incurred by internal staff during recruitment (e.g., travel, lunches, etc.)
- Reference checks, background checks and/or candidate assessment testing
- Applicant Tracking System (ATS) costs
- Employee referral/rewards program costs
External costs include:
- Any outsourced recruiter fees (and their billable expenses)
- Advertising costs (print, online, TV, radio)
- Social media expenses
- Fees for online access to candidate resumes (e.g. LinkedIn, Monster, etc.)
- Job board postings costs
- Career Fair expenses
Notes: You may want to separate your CPH calculations by role type or level (e.g., CPH for executives versus CPH administrative staff)
David Green wrote an excellent post on why companies should focus on ROI rather than Cost-Per-Hire