CPH is the acronym for Cost Per Hire and this calculation will serve as a strategic tool to help not only evaluate, but also improve the efficiency and profitability of the recruitment-hiring process.
SHRM Formula to calculate Cost Per Hire
The Society for Human Resource Management came up with the standard formula for calculating the cost per hire. It is simply the total internal recruiting costs plus total external recruiting costs divided by the total number of hires in a given period.
It is important to understand what each of these terms is and what expenses can be categorized as internal or external recruiting costs. Looking closely at the different parts of this formula will also give an idea of where expenses are being spent and which ones might need to be cut down on.
Internal Recruiting Costs
These costs are those incurred from within the organization and related to the recruitment function.
The internal recruiting costs include the following:
- Recruiter salaries
- Bonuses paid on account of employee referrals
- Hiring manager salary proportion based on their percentage of time spent on hiring
- Interview costs (wage of interviewer/hiring manager’s percentage)
- Fixed costs like that for infrastructure
- Education and development of hiring team costs
External Recruiting Costs
These are the external costs incurred during the hiring process.
- Sourcing costs
- Software subscription costs like screening and testing websites or applicant tracking systems
- Hiring related travel expenses
- Costs for anything spent to attract candidates such as signing bonuses, dinners, etc.
- Candidate vettings like background or drug tests
Total Number of Hires
This means all the internal and external full time plus part-time hires who have gone through the whole hiring process and have been hired during the period for which you are calculating.
How to Use the Cost per Hire to Optimize the Hiring Process
One of the things you can do is to calculate the cost per hire based on categories such as job position, leadership level, etc to help better understand these particulars.
To know if your cost per hire is average, high, or low, you should compare it to the industry benchmarks.
Examine the cost per hire regularly to check whether it is constant, going up or down. Analyze it by department and job position and see whether there are any areas you can reduce the costs without negatively affecting the quality of the recruitment process. Use the data as a tool for strategic planning and budgeting in terms of recruitment. Cross-check the cost per hire with data on other recruitment measurements to see their relationship with one another and to see if the process can be further optimized in any way. Also, check which sources of hiring are the most cost-effective.
By following these best practices, you can use the cost per hire information to improve your strategic planning and hiring process.