65% of HR leaders admitted their companies plan to increase their headcount in 2024. Yes, even in an economic downturn. 68% also said, “Reducing costs” is a top priority. It makes sense. The need to optimize how you use your recruitment budget is crucial…especially when 54% believe that a slashed budget will be a big barrier to realizing their organizations’ human capital expectations in 2024. No wonder only 29% of HRs said their company will increase the talent acquisition budget this year. So, how do you operate with thin hiring budgets and increased pressure of tapping more quality talent? Back to old-school basics; Track and reduce your cost per hire. There are other hiring KPIs that you can optimize to control the cost, but cost per hire is your north-star metric which encompasses a lot of other factors that move the cost needle.
By the way, did you know that the average cost per hire fluctuates in the range of $3000 to $5000, depending on your industry and the size of your business?
“What is the cost per hire? How do you calculate the cost per hire? Why would hiring teams want to reduce it?” There can be thousands of questions bogging you if you’re on the recruitment team. Read this insight to
- Understand one of the top recruitment metrics that reflect the efficacy of recruiters— cost per hire.
- Learn how to calculate cost per hire using the cost per hire formula
- Find 11 strategies to reduce cost per hire, aka recruitment costs in your company
What’s Cost Per Hire? Why Measure It?
Cost per hire (CPH) is a recruitment metric to explicitly measure the exact amount you spend on hiring a candidate; direct or indirect expenses, which is inclusive of both intrinsic & extrinsic expenditures.
The intent of measuring cost per hire is to
- Empower teams to do strategic recruitment budget planning
- Identify opportunities for recruiting process improvement.
Additionally, tracking cost per hire helps you understand which recruitment channels are best performing, and which are leaking resources. It’s also a good metric to benchmark your organization’s efficacy at recruiting against the industry standards (including competitors).
But…how do you calculate cost per hire?
Formula To Calculate Cost Per Hire
First, decide at what level you want to calculate the cost per hire. And then research to prepare a comprehensive list of all the recruitment cost drivers.
You can calculate cost per hire at the organizational level (across multiple continents), branch level, department level, recruiting channel level, hiring manager level, phase level, and employment type level.
To calculate cost per hire, you can use a simple formula-
Total costs incurred in hiring candidates / Number of candidates hired
As simple as that.
The numerator can be further divided into recruiter-driven (internal costs) and candidate-driven (external costs) cost drivers. Hence, the formula to calculate cost per hire would be
(Recruiter-driven costs + Candidate-driven costs)/Number of candidates hired
The actual list of recruitment cost examples may vary for your organization, but here is a small reference list to start estimating your internal & external recruitment cost drivers.
Recruiter-driven Recruitment Cost Examples (Internal Costs)
| Internal Cost Factor | Explanation & Example |
|---|---|
| Recruitment Compliance Costs | The cost incurred in ensuring that your recruitment practices are compliant with not just your internal policies but laws, regulations, etcetera. Recruitment compliance cost examples may include adhering to ethical recruiting processes, equal employment opportunities, data protection & privacy laws, and labor laws. |
| Operations & Administrative costs | The expenses to keep the recruitment engines functioning at full throttle. Administrative recruitment cost examples comprise the talent acquisition team’s office space rent, energy and utility costs, and travel & lodging charges (for recruiters who visit industry/college recruitment events). |
| Hiring Team Costs | Benefits that recruitment teams get in terms of salaries/compensation, health insurance, retirement plans, recruiting bonuses, training & development programs for recruiters, HR specialists, and hiring managers all can be counted under hiring team recruitment cost examples. |
| Hiring Tech Stack | Recruitment teams often invest in HR technologies— from AI job description generators to intelligent AI-led resume processing tools, candidate assessment tools, document verification, your own branded job board, ATS, HRIS, and whatnot. All this contributes toward the cost per hire. |
Candidate-driven Recruitment Cost Examples (External Costs)
| External Cost Factor | Explanation & Example |
|---|---|
| Job Advertising Costs | This is inevitable. You often spend money for distributing job posts across different job boards, then spend on job advertisements on the very same platform, and/or on social media platforms like Facebook, Instagram, and LinkedIn. This cost is a big contributing factor in inflating cost per hire. |
| Sourcing Expenses | Technically, arranging a relevant database of candidate’s information i.e., candidate sourcing is a cost driver too. It’s a significant driver of cost if you are relying on an external talent scouting agency, industry event-based hiring drives, or college recruitment events. |
| Employee Referral Bonus | When you hire through employee referrals, you often incentivize them to refer more candidates by offering them monetary rewards, and other perks. This too gets counted in recruiting costs. |
| Signing Bonus | When candidates become your employees, many companies offer them a signing bonus, which can be used to shift to a new location, or whatever adjustment needs to be made to be comfortable in joining your organization. This isn’t part of the salary and is an additional recruitment cost. Remember, the salary of the candidate is not counted as a recruitment cost. |
Besides, you have to factor in candidates who dropped off from your organization within the first 6 months of getting hired. Plus, you also have to account for burnouts, loss of cadence (project timelines), and loss of profitability while the position is vacant. For these, we can add a variable cost factor function N(x) to normalize the actual cost-per-hire formula. With this normalization, the final cost-per-hire formula is-
((Recruiter-driven costs + Candidate-driven costs) + normalization variable N(x))/Number of candidates hired
11 Tactics To Reduce Cost Per Hire
Though the average cost per hire is in the range of $3,000 to $5,000, sometimes the actual costs can be as much as 3x of the vacant position salary, especially when hiring for top executive positions. Thus, as mentioned earlier, it’s quintessential to continuously make efforts toward reducing your cost-per-hire recruitment metric.
Here are 11 strategies to reduce your cost-per-hire.
Fix Your Culture, Improve Your eNPS, Reduce Turnover
As per Deloitte, culture is one of the major factors employees quit.
33% of workers leave their jobs within the first 90 days because of unmet cultural expectations.
High turnover will bloat your cost-per-hire.
So, to reduce your cost-per-hire, just fix your culture.
We understand it’s not that simple, but you have to do it.
Start with an audit i.e., an organization, and a team-level survey of what can be improved. Make a business case, and get a buy-in from the top leadership.
Next, find culture advocates within your organization, and equip them with all the tools that they need to get your culture in line.
Hint: DEI initiatives are a good starting point for organizations with a flawed culture.
Fixing culture will help you reduce turnover i.e., the talent stays longer at your organization, and you do not have to drill your pockets to replace talent all the time. Fixing culture also improves your overall employee net promoter score, and that means your employees would have all the good words for you even outside your organizational compound. Hence, more candidates would voluntarily be interested in joining your organization when they come to know of your amazing culture.
Amplify Your Employer Brand. Post Jobs On Your Own Branded Company Portal. Be Visible At Industry Events. Organize Regular Job Fairs And Recruitment Drives
Another benefit of having an amazing employee-first culture is that you get to boast about it thumping your chest (not literally tho’). Why be vocal about culture? To attract more candidates, and lower sourcing costs. 75% of candidates consider an employer brand before they apply for the job. So, to reduce cost per hire don’t shy away from marketing your culture.
Using your own branded company job portal can be quite handy in attracting good-quality candidates to your organization. On your careers portal, you can talk about your company’s mission, values, compensation, fair pay, work-life balance, diversity, job security, psychological safety, and more. In fact, companies that have a branded job portal attract up to 8x more applicants. Imagine to what extent that can reduce your cost per hire.
Create Job Descriptions (JD) Optimized To Attract Maximum Applications, Use The Skima AI Job Description Generator
Did you know that shorter job posts i.e., job descriptions with less than 150 words attract 17.8% more applicants than 400 to 600-word job posts? Yup! That’s true. Maybe, it is because a lot of applicants casually browse for opportunities on their mobile phones. Creating JD that helps you maximize the influx of applications can significantly increase the chances of attracting the right hires, and thus reduce your dependency on external hiring agencies. Ultimately, this will reduce the cost per hire.
To improve your job description for the maximum number of applicants, use the Skima AI job description generator.
This free tool from the Skima AI team helps recruiters create highly optimized job descriptions. It helps you quickly generate JD, and then lets you customize the fields that matter the most to the candidates— compensation (61%) details, qualification (49%) details, and job role & responsibilities (49%) information.
The Skima AI job description generator also helps you customize the details about performance goals (33%), and diversity & culture (28%), which are equally important in evoking interest in candidates.
Use Niche Job Boards, And Distribute Your Job Posts Everywhere
Many a time, when our efforts are fragmented and not tracked properly, it’s possible for the budget to leak through the cracks. It often happens to the recruiters too. The instinct of a recruiter is to subscribe to as many job boards as possible. But practically, it is tough to manage all the job boards manually. It would be a nightmare to process applicant's resumes from all those platforms. The more the number of platforms, the more the recruitment costs.
One of the best ways to cut expenditures and reduce cost per hire is by using integrated job boards, and only advertising on the sites wherein the ROI is very high. Analyze your past jobs data, and see which platforms did exceptionally well in terms of click-through rates. Also, check the platforms that had good job audience-to-applicant conversion rates. See if you could optimize your job posts further to translate a high click-through rate into a high number of application conversions. With a concerted effort on specific job boards, you will successfully decrease your average cost per hire.
Use Skima AI To Speed Up Resume Screening, And Build Your Pool Of Best Fit Candidates
The HR community is lately catching up with the AI frenzy. Though only 25% of HR teams use AI in their operations, the adoption is pretty good among talent acquisition specialists. A whopping 42% of hiring executives use AI for recruitment. In 2025, the numbers will be way better as more and more HR teams realize the value proposition of AI in cutting down recruitment process expenses like candidate’s resume screening, interview scheduling, and candidate management. Leveraging workflow automation could do magic for recruiters. It could save plenty of recruiting time, money, and other resources.
Use Skima AI to save yourself from the frustration of going through 1000s of candidate resumes to find qualified candidates. What would take you days, Skima AI gets it done in the blink of an eye, and at comparatively negligible cost. Using Skima AI you can perform resume screening at lightning speed, spot your purple squirrels, and build a pool of high-quality candidates.
Use Assessment Automation Software To Zero-In On Qualified Candidates
To further bring down your cost per hire, you can eliminate the logistical costs associated with in-person interviews. We are not talking about events & campus recruiting drives, but rather situations where you are bulk hiring using job boards. When you invite candidates to your office, of course, you can give them a red-carpet hiring experience, but not everyone who interviews gets to hold an employee identity card of your organization. Right? Then, why waste your time and resources on those candidates?
Use digital aka virtual assessment automation software to test candidates' skills before you invite them for a more comprehensive interview. This could save a lot of time and organizational resources. Let’s say, you interview 30 candidates per hire. And you’ve to close 3000 positions in a year across 5 branches. That means 90,000 interviews. In NYC, organizing those many interviews would translate straightaway into $1Mn+ in real-estate costs. You can easily slash it down by embracing intelligent assessment software solutions.
Partner With Industry-focused Staffing Agencies and University campuses
If you regularly bulk hire fresh talent out of college, it could be beneficial to tie up with a few colleges or universities and request the academia to cater to your workforce needs by offering some optional courses or certifications that nurture the interested kids to join your team. A strategic approach here will not only bolster your brand but will also help build a continuous talent pipeline for you.
Similarly, to reduce cost per hire, partner with some staffing agencies specialized in a particular industry. For instance, as per reports, 82% of mid-size to large retail enterprises struggle with their hiring needs. What’s the solution? It could be a good option to temporarily partner with an industry-focused staffing agency to whom you can shoulder the responsibilities of maintaining a ready-to-join pool of workers, thus reducing cost per hire.
Embrace Modern Recruiting Strategies
Control cost per hire by learning modern recruiting strategies like proactive recruiting to build a passive candidate pool, tap into social recruiting, use boolean searches in recruitment, leverage internal mobility, or set up an employee referral program. All these can help keep down your recruitment cost levers. For instance, internal mobility improves retention rates by 81%, and accelerates the hiring process by 69%. Thus, saving you both time and money.
Streamline Application To Final Round Interview Lifecycle With Aggressive Use Of Hiring Tech
Today, you can use the right recruiting tech to automate your entire recruitment workflow. From candidate interview communication to follow-ups and rejection, everything can be automated to cut cost per hire.
Optimize Candidate Experience
From application to interview to hire, optimize your candidate experience all throughout. This helps minimize candidate drop-offs during the pre-onboarding phase. And hence, you don’t have to spend extra on backup candidates, thus reducing the cost per hire.
Collect Feedback & Loop-In The Lessons Back Into Your Hiring Curve
One of the often overlooked tactics to reduce cost per hire is to collect feedback within the organization. Refine survey questions to gain insights from your candidate’s hiring experience. But feedback that’s not acted upon is wasted feedback. Thus, establish a loop-in channel to implement worthy ideas, and build a culture employees are proud to be part of.
How Skima AI Helps You Reduce Cost Per Hire
Companies have cut costs by as much as 60% by building internal candidate data banks. Skima AI helps you leverage the same to reduce your hiring costs. With Skima AI, from one dashboard-
- Pull data from all ATS, and get in-depth insights about the present state of your candidate’s data bank; break down the candidate pool based on domains and geographies.
- Use Skima AI Matching Score product to find the right-fit candidates among all your programs. And control your cost of hire and rent of hire.
- Automate your hiring workflows with Skima AI, including automatic candidate communications, interview scheduling, etc.
- Use Skima AI to launch the branded job portal of your organization.
Also, you can always use the free AI job description generator to create job board-friendly descriptions that attract maximum applicants.
Try Skima AI today, or book a 1:1 demo.
Happy recruiting!
