Did you know that the average U.S. employer spends about $4,000 to hire a new worker?
Obviously, companies would love to devote that money to other endeavors—making ways to decrease hiring-related expenses highly desirable.
To gain a better understanding of what they’re spending on hiring efforts and how that compares to others in the same industry, companies often turn to a metric known as cost-per-hire.
Here, we look at what goes into figuring out an individual firm’s cost-per-hire and what actions employers might take to achieve a better result.
Calculating cost-per-hire.
The Society for Human Resource Management (SHRM) and the American National Standards Institute (ANSI) collaborated to come up with a commonly accepted definition of cost-per-hire: total dollars expended in external and internal costs divided by total number of hires for a specified period of time.
Determining “total dollars expended” in filling vacancies is the tricky part, so let’s look at the two contributors in more detail.
External costs
What money did you pay out to other organizations to help you find and evaluate candidates? Maybe you hired a third-party recruiter, ran an ad on a job board, or paid to attend an industry event. To feel more confident about potential hires, perhaps you gave them an assessment, ran a background check, or conducted a drug test. All of the money spent outside of the organization on recruiting efforts and decisions makes up the external cost variable in the cost-per-hire equation.
Discover a better way to recruit remote talent
Founded in 2007, FlexJobs is the most experienced remote & hybrid hiring platform.
- Unlimited job posts
- Low, flat membership fee
- Access top-level remote advice
- Unlimited resume searches
- Reach the right candidates
- And so much more!
Internal costs
What money did you spend in-house in order to fill vacancies? The portion of staff member salaries devoted to recruitment measures needs to be taken into account, as do bonuses paid for employee referrals. Then, there are also costs associated with purchasing and maintaining applicant tracking systems (ATS).
So, as an example, if Company XYZ determined it spent $8,000 on external costs and $4,000 on internal costs to hire four new call center representatives during the second quarter of the year, its cost-per-hire would be $3,000 ($8,000 + $4,000=$12,000 and divide that by 4).
Note that a variety of online tools exist that assist employers in thinking about their internal and external costs. Some of these even venture into including indirect costs, such as productivity loss and turnover in the full cost of hiring.
Reducing cost-per-hire.
It follows, then, that obtaining a better (meaning lower) cost-per-hire involves spending less externally, spending less internally, or hiring more people with the money spent. However, employers must be cautious about playing a numbers game. For instance, finding a really great person for a hard-to-fill role might entail spending more recruitment dollars but saving money down the line because of the quality of work produced and (obviously) retention.
So what efforts might an employer try?
“In terms of reducing cost-per-hire, the old sports cliché ‘the best defense is a good offense’ rings true here,” says Jill Santopietro Panall of 21Oak HR Consulting. “Plan ahead! Expect people to leave! If you expect everyone to stay forever, not only are you delusional about the current state of employment but you’ll also be flat-footed every time someone leaves.”
She suggests proactive steps such as succession planning (thinking about who could get promoted if someone leaves) and developing internal candidates, noting that these measures “can reduce your cost-per-hire greatly, as you can avoid most of the hard costs (recruiting, equipment, etc.) that are necessary with external hires.”
Other cost-per-hire measures experts often recommend
Asking for employee referrals
Besides costing less than most other ways of generating an application pool, studies show that workers hired through this manner experience greater job satisfaction and stay longer with the company than those found through external sources.
Paying more attention to onboarding
A whopping 31% of new employees quit their job within six months. Encourage new hires to stick around by providing the support they need to adjust to company culture, feel welcome, and get up to speed.
Attend virtual job fairs
While traditional job fairs can require travel expenses and a display, virtual job fairs can be done remotely to recruit top talent. If your company embraces work flexibility (or is planning to implement a policy), virtual job fairs offer many benefits to employers.
A matter of fact, FlexJobs most recent virtual job fair had thousands of qualified registrants. Be sure to check back on future dates!
Not reinventing the wheel every time a position needs filling
Build a pipeline of people who have expressed interest in working for your company, and turn to this information first when an opening arises. Likewise, keep notes on what worked or didn’t work in past recruiting efforts, and turn to the most productive sources (perhaps a niche job board or a nearby college’s career office).
Finding Talented Employees for Your Company
With extensive expertise in recruitment, flex branding, consulting, and ongoing candidate engagement, FlexJobs helps employers successfully leverage their workplace flexibility to get top talent. A membership package can be your ticket to long-term reduction in cost-per hire.
LEARN ABOUT THE BENEFITS OF USING FLEXJOBS TO CONNECT WITH TOP TALENT >>>
Photo Credit: bigstockphoto.com
Don't forget to share this article with colleagues!
