Articles

The pros and cons of calculating cost per hire

Making the right decisions when hiring new staff is a critical skill. Getting the right team on board is essential in allowing your company not just to survive but also to thrive and reach new heights. To get the most from your hiring process, it’s important to be tracking your performance throughout hiring. This allows you to calculate the cost of each new employee you hire, and in time you can begin to have an accurate expectation of the cost of new hire policies at your company.

Factors in cost per hire

Before understanding the arguments for and against using cost per hire, it’s important to understand how cost per hire is calculated. On a basic level, it simply comes down to the total money you spend on recruitment and onboarding divided by the number of employees hired. Calculating this can be more complex, however, and it’s easy to overlook possible costs in the process if you aren’t careful. These are the most common factors in the cost of hiring a new employee:

  • Hiring an outside recruiting agency or consulting group to assist in the identification, screening or interviewing of potential candidates
  • Travel expenses paid on behalf of potential candidates brought in for in-person interviews as part of a recruiting process that extends beyond your immediate area
  • Training costs, in the form of paid classes, the cost of training resources and time spent by other staff training the new hire
  • Reduced production in the time after hiring when the new employee is getting up to speed and unable to match their predecessor
  • Employee hours among human resources, management and any other staff involved in the screening and hiring process
  • Promotional costs for job listings boosted with paid advertising to raise impressions on your listings
  • Internal bonuses paid out to employees for referrals of candidates who are ultimately hired for open positions

Your hiring process may have additional costs, so take the time to assess how you spend money when recruiting, and then you can know how much it really costs to hire an employee.

The cost of making the wrong hire

Finding a quality employee for your open position is a must. If you make the wrong hire, the costs of the poor selection can be significant and come in many different forms. Some of the top concerns when making a poor hire include:

  • Time wasted by members of the staff responsible for hiring the new employee
  • Loss of productivity as a result of filling a position with an inferior worker
  • Decreased productivity from other staff members as a result of spending time assisting and acclimating the new hire
  • Loss of morale in the office as a result of high turnover or working with ineffective coworkers
  • Reentering the hiring process when an employee does not work out, resulting in a new round of recruiting spending

With so many different ways that making a bad decision for your next open position can harm your bottom line, it’s clear to see why it’s important to make sure that you’re doing everything you need to land a top-rate staff member.

Pros of calculating cost per hire

If you’re considering using a cost per hire calculator to determine the expenses of your hiring process, here are the primary benefits of using the metric:

  • It helps identify inefficiencies
  The art of writing the perfect recruitment ad

When calculating your cost per hire you first have to take the time to break down where the costs in your hiring process are coming from. Doing this is also the first step in finding ways to save money in hiring by reducing spending in areas where your process is not being carried out smoothly. For example, if you notice that you are allocating similar budgets to two different job listing sites but receiving viable applicants at a much higher rate from one, you know to alter your budget to shift resources to the more efficient option.

  • Consider spending

Adjusting the areas where you are spending your available funding isn’t just about saving money, but also maximizing the chances of finding the best possible candidate for your job listing. When you know what parts of your previous searches have found strong candidates, you can focus on them to continue finding similarly qualified candidates for your next posting. Finding the right candidate by increasing funding for a valued part of your search is even more valuable than the money you save by decreasing spending with less successful sources.

  • Effective budgeting

Keeping a handle on the financial spending of your company is essential, and the more accurate your budgets are the easier it is to stay on top of your finances. With an accurate cost per hire estimate, you are better prepared to budget for the costs associated with your staffing decisions.

Cons of calculating cost per hire

When using cost per hire to assess your hiring practices, it’s essential to understand the drawbacks of the metric as well to make sure that you are using it beneficially. The biggest issues to consider when calculating the cost of a new hire are:

  • Cost can trump quality

The most natural mistake to make when managing a company’s budget is to think that anywhere you can reduce spending is a net gain on the company’s bottom line, and this applies to the hiring process as well. Although getting rid of wasteful spending in your hiring process is a good thing and will help your company to flourish, when taken too far, you can end up losing a dollar to save a penny. When the money you save on recruiting results in hiring a lower-quality employee, who produces at a significantly worse rate than an employee you would have found with a larger recruiting drive, the money you “saved” is a net loss.

  • The calculation is its own cost
  20 benefits candidates look for over salary growth

Ironically, many of the efforts required to undergo a cost per hire calculation are in-turn expenses that need to be considered and factored into your plans. The time employees spend on compiling the data used in calculating the cost of a new hire has value. And while the benefits of the calculation often justify this expenditure, if you’re devoting too much time and too many resources, you may be negating any of the positive benefits you gain from the calculations.

Conclusion

Knowing the cost of a new hire for your business is a worthwhile goal to pursue. From helping to ensure you have the right resources allocated for the task, to ensure that you are only using the resources you truly need, it helps to make your entire operation more streamlined and efficient. If you haven’t calculated your company’s cost per hire before, take the time to start tracking and assessing in the future.

Maybe you'd like these too

Talent acquisition

Everything you need to know about cost per hire

By Ingrid Stommer

Talent acquisition

Reducing cost per hire without impacting quality

By Ingrid Stommer

Talent acquisition

Evaluating the true cost per hire

By Ingrid Stommer