In 2023, it cost over $4,700 to recruit a single worker over a time span of 36 to 42 days to fill average roles in the US.  These costs can add up quickly, especially for small businesses or startups that need to grow their teams fast. Luckily, there are some strategies that can help you reduce your hiring cost without compromising the quality or efficiency of the candidates and the hiring process. Without further ado, let’s go through effective ways to reduce hiring costs while still attracting top-tier candidates.
Understanding Cost Per Hire
Cost per hire is a metric used to measure the financial investment to hire a new employee. So, how to calculate the cost per hire? You can do it by adding up all the expenses related to the hiring process, such as advertising, recruiting, screening, interviewing, testing, training, and onboarding, and dividing them by the number of hires made in a given period. Cost per hire helps you assess the effectiveness and efficiency of your recruitment strategies and evaluate the financial impact of bringing new talent on board.
Cost per hire can be divided into two categories:
- Internal costs: The expenses that are incurred within the company, such as the salaries and benefits of the hiring team, the time spent by the managers and employees on hiring activities, the cost of internal referrals, and the overhead costs of the office and equipment.
- External costs: We are talking about costs that expenses that are paid to outside parties, such as job boards, recruitment agencies, background checks, travel expenses, relocation expenses, and sign-on bonuses.
Strategies to Reduce Cost Per Hire
Referrals are an effective way to reduce cost per hire while ensuring the quality of candidates and a high retention rate. Your employees can refer people from their network who are qualified, interested, and fit your company culture. This cuts down your hiring time by skipping some of the screening steps in favor of relying on the trust and credibility of your employees.
So, encourage your employees to refer their friends, colleagues, or acquaintances who might be a good fit for the position. Offer incentives to your employees for successful referrals, such as a bonus or extra paid time off.
2. Free Job Boards
Posting your job ads on free job boards, such as Indeed, Glassdoor, or LinkedIn, can help you reach a large and diverse pool of candidates without spending any money. To make sure that you attract the right candidates, optimize your job descriptions for search engines. This will help you rank your job ads higher in the search results and get more relevant candidates from searches, which can reduce the time and cost of interviewing the wrong people.
However, given the amount of openings you have on your hands, this could take a considerable amount of time, especially if you need to post on a large number of job boards.
Using Manatal, you can share your job openings across 2,500+ free and premium channels. Within one click, your job ads will appear on platforms like Indeed, LinkedIn, Monster, CareerJet, JobStreet, and more.
3. Use Past Candidates
Another way to reduce your cost per hire is to leverage your existing and past candidate lists. These are the people who have already applied to your company or have been contacted by your recruiters in the past. They may not have been hired for various reasons, such as timing, availability, or fit, but they may still be interested and qualified for your current or future openings. So, this is a good opportunity to reach out to them.
4. Recruitment Marketing
Strategizing around recruitment marketing is also a good way to cut down cost per hire. It involves promoting your employer brand to potential candidates. Some of the recruitment marketing strategies that you can use are:
5. Consider Hiring Remotely
If skilled professionals are scarce in a particular location, consider expanding your search globally. Hiring remote workers allows you to tap into talent pools from around the world, potentially reducing hiring and salary costs in certain regions. However, keep in mind that it’s important to consider factors like language barriers, time zone differences, and cultural fit when hiring remotely. Before you start hiring talent from another region, make sure that the process is well-structured to prevent irrelevant or wrong candidates from slipping into your list.
Average Cost Per Hire by Industry
The cost related to hiring can vary significantly depending on the industry, due to many factors. Let's explore the average cost per hire in four key industries.
- Tech: $14,936
The technology and innovation industry requires highly skilled and specialized professionals with expertise in software engineering, data science, and product development. The high ceiling for skills creates challenges for recruiters in this field which also impacts the cost per hire.
- Healthcare and Medicine: $7,227
The stringent requirements and regulatory compliance in this field often lead to a higher average cost per hire. The cost includes expenses related to background checks, verification of credentials, drug testing, and other compliance measures. Healthcare organizations also often need to invest in specialized recruitment channels, extensive interviews, and thorough reference checks to ensure they hire competent and ethical professionals who can provide the highest quality of care to patients.
- Retail and Hospitality: $3,004
These industries typically experience a high turnover rate, resulting in a constant need for new hires. The average cost per hire is relatively lower in this sector compared to others. Mainly due to the large pool of available candidates and the high volume of applications received. However, recruitment costs still include job advertising, background checks, training, and onboarding expenses. Retail and hospitality companies often rely on job boards, online applications, and referral programs to attract a large number of potential employees at a lower cost.
- Finance and Banking: $5,611
The industry's average cost per hire is influenced by several factors, including the need for strict background checks, thorough screening processes, and extensive interviews to ensure competence and integrity. Financial institutions use their networks, professional associations, and recruitment agencies to attract top talent.
How Do You Use Cost Per Hire?
Cost per hire is a useful metric that can help you evaluate and improve your hiring process. You can use cost per hire to:
- Benchmark your performance against other companies in your industry or sector: You can compare your average cost per hire with the industry average or the best practices to see how you are doing.
- Optimize your recruiting budget and strategy: You can identify the areas where you are spending the most or the least on hiring, and adjust your allocation of resources accordingly. You can also experiment with different sources, methods, and tools to find the optimal mix for your hiring goals.
- Improve your hiring quality and retention: You can analyze the relationship between cost per hire and quality of hire, and see if you are getting the best return on your investment. You can also track the impact of cost per hire on employee turnover, engagement, and performance.
Cost Per Hire Metrics
The cost-per-hire metrics are the measurements that help you evaluate and compare your hiring costs. There are different types of cost-per-hire metrics that you can use, depending on your purpose and data availability. Here are some of the most common metrics that you can use:
- Cost per hire formula: This formula calculates the average cost of hiring one employee, by adding up all the internal and external costs related to the hiring process and dividing them by the total number of hires made in a given period. This is a simple and easy-to-use formula, but it may not capture all the nuances and variations of the hiring process, such as the quality, time, and source of hire.
The standard formula for cost per hire is:
- Cost per hire comparable (CPHC): This is a type of cost per hire metric that uses common data points to make cross-organizational comparisons easier. CPHC is calculated by using the following formula:
CPHC excludes referral bonuses and relocation costs from the cost-per-hire calculation, as these costs may vary significantly across different organizations and industries. You can use CPHC to compare your cost per hire with other companies or benchmarks more accurately and consistently.
- Recruiting Cost Rate / Recruiting Cost Ratio: This metric measures the efficiency of the recruiting process by dividing the total recruiting expense by the total compensation of the hires. The formula for the Recruiting Cost Rate / Recruiting Cost Ratio is:
Reducing your hiring cost is not only beneficial for your bottom line but also for your hiring quality and efficiency. By following the strategies and metrics that we have discussed, you can save money, time, and energy, and find the best talent for your business faster. Remember, hiring is an investment, not an expense, and you can make the most of it by spending less.