How to reduce cost per hire?

Are you hiring the best talent in the shortest time for the least expense?

To begin to answer that question, you will need to know your cost per hire (CPH). Knowing this figure can help you make better strategic decisions and save your company money.

According to the CIPD,

“The average recruitment cost of filling a vacancy, including associated labour costs, is £6,125. For a senior manager role, these figures rise to £19,000, and if things fail to work out the first time around, you can expect to double these for the cost of rehiring once again. Hiring guru Bradford Smart estimates the cost of a ‘mis-hire’ to be anywhere from four times the annual salary for supervisors and all the way up to 15 times the annual salary for Chief Executives.”

Cost-Per-Hire (CPH) is a timely topic for Talent Acquisition (TA) professionals, many of whom are under pressure to deliver better quality hires with fewer resources. The number of specialised roles that need to be filled is increasing, but the applicant volume keeps decreasing as we’re on the edge of the biggest candidate shortage yet.

The good news is that by measuring the right data, you can gain control over your talent acquisition spend and develop strategies to hire the best talent in half the time.

How to calculate Cost Per Hire?

To improve your TA processes and reduce your CPH, you need to know your current CPH. The metric consists of external and internal recruiting costs, and it depends on your hiring volumes:

How to calculate cost per hire

Most organisations measure CPH using SHRM's formula:

cost per fire - formula

Note: The cost of the salary of the new hire should not be included in these calculations.

Understanding your CPH will allow you to benchmark your company against the overall industry averages and analyse the data by department and type of position. This information enables you to see outliers and to dive deeper into understanding the reasons for those differences.

What are your possible options if you need to lower your CPH?

How to reduce Cost Per Hire

Now that you have identified your CPH and gained alignment on those figures across your internal stakeholders, you can decide how best to reduce CPH.

The effectiveness of these approaches may vary depending on the industry, in-demand roles, or even the location of your company. Here are the top 4 strategies.

1. Digitisation and automation of your recruitment processes

Upfront investment in the selection, implementation, and optimisation of the right online tools, professional HR technology, and AI at the right point in the recruitment process can reduce costs in the long run. Training recruiters to optimise the right tools is an essential part of success.

For example, synchronous and asynchronous video face-to-face interviews will save you time, allowing your teams to interview higher volumes of candidates in a shorter time frame, as well as save on travel expenses.

With over €24bn invested in HR tools over the last 12 months, there are numerous technologies and applications to choose from, and you might benefit from a partner to curate the almost endless offerings for you to digest.

2. Reinvigorating employee referrals

Offering your employees incentives to recommend possible candidates is an effective and commonly used technique that will reduce costs, time to hire, and even turnover of employees. To be effective, your Employee Value Proposition must be both authentic and strong.

Here are some of the examples of referral programs and ways to activate employee networks:

Salesforce organises Recruitment Happy Hours - employees are encouraged to invite people they’d like to refer to informal meetings organised at their offices.

Google's internal TA team asks employees one simple question: “Who is the best software developer/programmer/java developer you know?”. Asking that question automatically directs people’s thoughts towards the answers Google wants to hear.

3. Igniting existing employees networks

Take your referral scheme to the next level by actively encouraging your employees to share your job opportunities on their social media channels. Perhaps they don’t know anyone suitable for the role, but they might know someone who knows someone, and social media will help to increase the reach of your message.

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

4. Build a talent pool ready for future needs

If you have roles that you repeatedly hire, even if they are niche, you could invest in building a talent pool of people with the right skills. Your mission is then to create sustained and two-way engagement with this group to keep your brand at the top of their minds - even when you don’t have live roles to fill and even when the individual is not actively looking for a new challenge.

Using tools to observe the activity within the talent pool, you will be ready to reach out to candidates who perform “trigger” actions, such as updating their professional networking profile. Your goal is to convert them into active candidates aligned with a live opportunity. The advantage is that they are already familiar with key messages that they have received from your TA team over the past few months, making them more likely to engage.

If these strategies seem like a lot to ask of your already stretched Talent Acquisition function, and if you don’t have the budget or time to invest in establishing and running these approaches, you will benefit from a Recruiting Process Outsourcing (RPO) service.

RPO is where you bring in a partner to support or supplement your TA or HR team.

The RPO will make the investments in the required tools and will arrive with experience in optimising all aspects of the end-to-end recruitment process. This ultimately leads to a reduction in the Cost Per Hire, resilience through peaks and troughs, and compliance with best practices.

Here is a practical example of how RPO can drive down cost of hire and improve the talent acquisition process.

Read Case study

If you’d like to discuss outsourcing some or all of your recruitment, please get in touch and one of our experts will contact you directly to schedule an informal chat.