Given the current economic and inflationary climate combined with a tight labour market, cost per hire will be scrutinised very closely by cost-conscious business and Talent Acquisition (TA) Leaders in 2023. But there is far more to this measure than meets the eye as I’ll explain in part one of our new series on hiring metrics.  

So what constitutes cost per hire? In very simple terms, it can be defined as the sum total of all internal plus external recruitment costs divided by the number of new hires. In other words, pounds spent against the number of people brought in. This covers many different areas, including spend on recruitment agencies, marketing and job boards, different technologies and licences as well as the salary costs of your internal TA team(s).  

Maximising efficiency and effectiveness 

But more importantly, what cost per hire does is highlight the inefficiencies in your processes and hiring strategies so that you can pinpoint what needs correcting. So it goes much deeper than pure numbers, it enables you to take a holistic view of your whole recruitment operation – the ultimate aim being to find the right people, boost retention and reduce attrition.   

There are a multitude of factors that make up cost per hire. It’s critical that you distinguish between your fixed and flexible costs. The former tend to be longer term contractual commitments, for example Applicant Tracking Systems licences or office space within which your TA team(s) are based. These costs cannot be scaled back in line with your hiring volumes. Exploring how you can move some of these fixed costs out of your organisation and into more flexible arrangements through partnerships can be very worthwhile.  

Many TA leaders are unaware of the potential hidden costs that they should be attributing to the recruitment process, but aren’t. This is why you need to have the data insights and intelligence to give you the visibility to react and improve on hiring outcomes. But you must track the right metrics to accurately measure cost per hire. Having transparency over fees, simplifying commercial structures and how you pay for those services will ensure that your expenditure is linked to the genuine outputs you’re hoping for.  

Gaining visibility and flexibility 

Partnering with a reputable RPO provider can provide you with that flexibility to help you generate efficiencies. A commitment to a high volume of direct hiring will reduce ballooning agency spend, especially when you’re in growth mode (an RPO can manage agencies on your preferred supplier list too, particularly when sourcing for very niche, specialist skills, which will improve time to fill). It will also reduce the costs of your own internal recruitment team, minimising some of those fixed costs. Not to mention tapping into the partner’s sourcing engine, the knowledge of its experts and the tech and tools they bring. 

Maximising the use of your hiring budget is pivotal as you attract and engage with the skilled individuals that you want to bring into your business. Can you streamline and improve your hiring and application process? Can you redirect your spend to more effective talent attraction channels? Are you carrying out internal skills mapping to facilitate global internal mobility to plug those skills gaps? These are just some of the questions that detailed cost per hire analysis will help answer.  

Beyond a simple formula, cost per hire reveals much more than a financial figure. But you need to understand and measure all its inputs and how they interact with each other. Make sure you have a good understanding of the balance between fixed and flexible costs. This will enable you to make informed decisions to achieve optimal ROI and attract the right talent at the right time in a fiercely competitive labour market – without paying premium prices.  

Want to find out more? Please email me at daniel.masters@resourcesolutions.com