Tuesday, December 2, 2008

What to Include in a Cost Per Hire Calculation

I have been asked several times over the last few weeks about calculating cost per hire. In particular, what items to include in the calculation. I have seen many companies calculate this metric in many ways. My advice is to make sure you include everything that impacts the new hire and be consistent with your formula.

I think it is very hard to compare apples to apples when looking at this number. Many people include managers time for interviews, some do not. Some people include training costs, others do not. Here are the items I recommend:
  • Salaries including benefits (recruiters)
  • Salaries including benefits (managers)
  • Travel, lodging and related expenses
  • Contract recruiter or search firm fees
  • Advertisements
  • Job fairs
  • College recruitment
  • Employee referral award
  • Screening (background checks, pre-employment testing)
  • Training new employee
  • RAMP UP Costs (New hires time to get to efficiency)
I believe it is important to look at cost per hire by job category. Here are a few suggestions:
  1. Hourly
  2. Leadership
  3. College graduates
  4. Professionals
This metric is a great way to show efficiency in the recruiting area. It is easy to derive and you can definitely start measuring tomorrow!

If you would like an excel file that contains these fields with formulas please email me and I will send it to you.

5 comments:

Chris - Manager's Sandbox said...

Cathy, nice post! The one thing I would like to add is that cost-per-hire shouldn't be a stand-alone metric. It needs to be considered in conjunction with quality of hire.

If you're spending a little more than you'd like, but getting top-notch candidates, it maybe a worthwhile trade-off. You can certainly work to bring that cost down, but if the quality starts dropping too, you may want to ask yourself if its worth it to save a few bucks.

And if your quality of hire sucks, but your CPH is low, you may want to consider adding a bit more money into the recruiting process.

Great post!

- Chris

Chris - Manager's Sandbox said...

Also, I'm interested in your spreadsheet but cannot seem to find your email address on the site. You can contact me at ManagersSandbox.com.

Thanks!

Cathy Missildine-Martin, SPHR said...

Chris:

Thanks for the kind words! Yes.. I believe you have to have a quality measure to balance the efficiency metric. We usually use a 90 day overall performance score and then an annual score after that. Thanks for pointing that out!

Stuart Jones, SPHR said...

Thanks for your post on cost of hire. I wonder also if anyone has any data on how many hours an HR pro works on the average hire? Preferably by industry and by level?

Cathy Missildine-Martin, SPHR said...

Stuart:

I dont have any formal data on the # of hours HR spends on each hire. I know with some of our clients they have done it by position and some have just taken total hours and calculated an average. I have not seen it broken by industry but that woul be very interesting data!

Thanks-
Cathy