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How can I reduce my cost per hire without impacting quality?

October 28, 2019

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How can I reduce my cost per hire without impacting quality?

Reducing cost per hire (CPH) is one of the biggest headaches facing the modern-day recruitment manager. 

The cost of hiring a new employee isn’t limited to just recruiting. We all know that it costs money to hire. Recruiters have to advertise on job boards, conduct interviews, run background checks and, of course, dispense and retrieve all of the paperwork associated with adding an employee. 

According to the Society of Human Resource Management (SHRM), the average CPH is almost $4,000.  Other industry benchmarks calculate average CPH as:  

  • *$3400: cost for an entry-level employee
  • *16% of annual salary: cost for a 30K or less job
  • *20% of annual salary: cost for a 75K or more job

*Ideal.com

The numbers will vary, depending on job level and on hiring practices, but every hiring manager can relate to the problem of inflated talent acquisition costs. 

How is cost per hire calculated? 

The way you can easily calculate your cost per hire is like this:

CPH is the average amount of money you spent on making a hire. This is calculated as recruitment costs divided by the total number of hires.

Internal recruiting costs are organizational costs and internal expenses. This may include:

  • In-house recruiting team salaries
  • Education and development costs for the hiring team
  • A percentage of hiring-manager salaries based on the proportion of time spent on hiring. So if a manager devotes 10% of their time to interviewing and hiring duties, and 90% to non-hiring related tasks, include 10% of their salary.
  • Bonuses paid for employee referrals

External recruiting costs refer to every expense you pay outside of your company. This may include:

  • Software subscriptions: applicant tracking systems (ATS), candidate relationship management systems (CRMs), or screening and testing websites
  • Sourcing: agency fees, job-board postings, career fairs
  • Candidate vetting: background checks, drug testing
  • Travel expenses related to hiring
  • Anything spent to entice candidates: dinners, signing bonuses, relocation expenses, etc.

What’s the true cost of a bad hire? 

It’s a well-known truth that the cost of hiring mistakes can be seen organization-wide, from lost time, productivity, and momentum to dips in morale and even to declines in growth. 

According to SHRM, one hiring mistake could cost up to five times the bad hire’s annual salary. In addition, research from The Harvard Business Review concluded that 80% of employee turnover is due to bad hiring decisions. 

Our bad hire calculator can help you to uncover the upfront costs of all your hires. 

How to reduce cost per hire without compromising quality 

Regardless of who you’re hiring and the methods you’re using to find and select them, here are four ways you can start cutting recruitment costs now without comprising on the quality of hire: 

Tap into advocacy 

Think about the last time you chose a restaurant or holiday destination: you probably looked up reviews online or asked a friend or family member for advice. Jobseekers are increasingly taking the same approach: 

  • Asking trusted colleagues, peers or friends for their impression of the employer
  • Consulting their connections on social media networks such as Twitter and LinkedIn
  • Turning to employer review sites like Indeed and Glassdoor for the inside scoop

If you’re confident that you’re doing the right things to make your employees feel supported, happy and engaged at work, your organization should feel comfortable encouraging staff to share their experiences of your workplace, particularly through their social media channels. 

According to research by MSLGroup, brand messages are shared 24 more times when distributed by employees than when shared by the brand itself. This makes advocacy a powerful, and inexpensive, tool that could make a difference to your recruitment strategy.

Utilize social media 

Communicating socially allows an employer to provide an insight into their day-to-day operations, their vision and values, and the type of people who work there. This transparency and authenticity will help to increase the volume of applications you receive from individuals who believe they’re a good cultural fit for your company. 

The beauty of social media is that it can be completely free. All you need to invest is a little time in putting together the right messages and campaigns, and interacting with your followers. You can also opt to pay for advertising campaigns to target specific audience groups. When you’re starting out, choose to focus on the most appropriate channels for your audience, rather than every possible platform. You’ll probably find that LinkedIn is the most relevant to your recruitment strategy. Read our Social Recruiting playbook to learn more. 

Build talent pools 

Sometimes, you can have lots of brilliant candidates for just a single role. Don’t waste those contacts: build talent pools of people you can approach when positions open up in the future. Pre-qualifying applicants can make the whole process much easier, quicker and more cost-efficient than sourcing from scratch. The further through the process the applicant has previously progressed, the more you already know about them. 

Reach out to your network 

Referrals are still the most effective way to get hires. According to SHRM, 45% of hires are through referrals. Reaching out to as many people as possible in your network is one of the best ways to reduce costs, time to hire and even turnover.

Some examples of referral programs that work include:

Salesforce – the company organizes Recruitment Happy Hours where employees are encouraged to invite people they’d like to refer to informal meetings organized at their offices.

Fiverr – the company uses technology to track the sharing of their jobs on social media and adds elements of gamification to the process. The company offers points for sharing jobs, referring friends and other activities focused around that. Based on the number of points collected, employees receive gifts on a quarterly and yearly basis.

Conclusion 

As you test out these simple recruiting methods, remember that every company is unique and the results that these methods produce vary. 

But if you measure and track the effectiveness of each of the methods, you can learn which ones are the most cost-effective for your organization. In return, you will reduce your while still hiring some of the best job seekers out there. 

 

Sim is Recruitee's content marketer and is one of the Recruitee blog's main curators. She's usually hard at work unearthing headline-worthy recruitment trends and interviewing breakout names in the HR tech business.