Understanding and reducing your cost per hire
Understanding your cost per hire is undoubtedly one of the most important metrics for HR and in-house recruitment teams. Not only will it help you make more strategic recruiting decisions but also ensure that you utilise your recruitment budget much more efficiently.
It is important to note that the only way to reduce your cost per hire, is to understand it.
According to Glassdoor, the average employer spends about £3000 and 27.5 days to hire a new employee, but the cost per hire not only depends on the role itself but also a number of other factors that can cause significant differences in the CPH for one role to another.
As a result, it can often be difficult to accurately calculate your cost per hire and without the right ATS, it can prove practically impossible!
What is your cost per hire?
By definition, Cost Per Hire is the total amount of resources that are required in order to recruit a single employee to your organisation. This means that in order to work out the CPH you will need to include the time and costs of both internal and external recruiting elements such as:
- Advertising - Job Boards / Aggregators / Media (Cost per credit)
- Access to CV Databases ( License costs/ Roles)
- Labour costs of your team ( Time x Salaries)
- Cost of your ATS ( License cost/positions filled)
- Referral awards or incentives ( Cost per role)
- Pre-assessment/ testing or recruitment checks ( Cost per invite)
If you utilise recruitment agencies then placement fees will also need to be added to the cost per hire.
Only once you are able to track the cost of each hire across your organisation will you be able to gain a true understanding of your average cost per hire and the areas you can start to optimise in order to drive efficiencies and reduce costs.
Reducing your cost per hire
Regardless of whether companies are lucky enough to manage extensive budgets or if a recruitment team has been faced with recent budget cuts, the drive to optimise your cost per hire remains a priority for all recruiters.
Take a look at our 7 top tips to help you reduce your cost per hire:
Tip 1 - Look at the data
Understanding where your hires come from and allocating your budget accordingly may seem like an obvious suggestion, but without the data, many in-house recruitment teams continue to pay to advertise on platforms that simply don't work. If you have previously recruited for a similar role, look at where the quality applications came from i.e. rather than looking at where most of your applications come from, look at the original source of candidates that were shortlisted and interviewed.
Tip 2 - Explore Social Media
Whilst there are paid options for some Social Media platforms to explore, there are lots of possibilities that can be included in your strategy for free.
If you have acquired a large following on your corporate profiles then this also presents a huge pool of potential talent in terms of recruiting. These people are already bought into your business and brand and would make ideal candidates. However, we appreciate that for some organisations, asking to post jobs during the midst of a well-planned marketing campaign may not be an option, but again there are ways and means.
Simply asking employees to share details on their own social profiles can have a huge impact. Not only will they be connected to people who share similar skills and career paths, but as current employees they become brand ambassadors that portray confidence in others to apply.
Building a network on Linkedin and joining groups in which you can promote your vacancies is also a cost-effective way to source top talent, especially when research shows that 3 people are recruited via Linkedin EVERY MINUTE!
Tip 3 - Introduce a referral scheme
Even if you agree to offer financial rewards for referrals, the cost impact on acquiring such high-quality talent will ultimately help you reduce your cost per hire by eliminating the need to advertise positions elsewhere, whilst also speeding up the process too with generally much better results!
Tip 4 - Maximise your Recruitment Marketing
All organisations, consciously or not, have an employer brand and deploy recruitment marketing strategies to obtain and retain top talent. With studies showing that over 75% of candidates research a firm’s reputation and employer brand before applying, creating a successful strategy can also have a significant impact on your cost per hire too.
With growing candidate expectations and the transparency of digital media, organisations need to be on top of their recruitment marketing game to be perceived as the employer brand of choice.
Take a look at our recent webinar and downloadable guide to find out more.
Tip 5 - Deliver the best candidate experience
A poor candidate experience can not only have a negative impact on a specific role but the future success of your recruitment efforts too and the associated costs!
Put yourself in the candidate’s shoes and take a look at your application and selection process. As well as considering how easy it is to apply, you also need to be mindful of how long you take to communicate with candidates and make decisions and the impact that this could have on top talent.
Companies also need to consider the future potential of any candidate that applies. A poor experience could rapidly reduce your talent pools and the cost benefits that recruiting from these channels offers.
As part of your candidate experience and onboarding process, you could also encourage new recruits to provide feedback and then you have live input to refine and improve your processes.
Tip 6 - Manage your talent pool
When managed efficiently, just like social media, a talent pool can help to reduce your cost per hire by removing the need to advertise externally. Using talent folders to essentially earmark candidates for future roles across your organisation will not only reduce time but costs also.
One of the easiest ways to make your talent pool work for you is by having a number of questions in your application form that can help you highlight candidates with certain skill sets, preferences, or career goals for example.
Tip 7 - Reduce the need to recruit in the first place
Attracting the right candidates to apply for your roles can be an expensive process, so companies also need to consider how to retain top talent, once a role has been filled.
Whilst employee retention offers a wealth of benefits such as improved morale and increased productivity one of the key benefits is a reduction in recruitment costs.
Employee retention, however, can be influenced in many ways and requires its own dedicated strategy. Whilst it is essential to offer competitive salaries, companies need to also consider the following elements:
Onboarding & Induction - Ensure your onboarding process is designed to support and engage new hires from the outset to maximise commitment and contribution to the business as a whole.
Compensation Packages - Employees need to be clear about their entire compensation package so that they can easily compare it to other opportunities and should include things like bonuses, paid time off, health initiatives, and pension funds.
Mentoring, Training & Development - Mentors are not only great for new hires but also for sharing new skills and enhancing the careers of experienced employees too. Once a new employee has learned the ropes, the progression shouldn’t stop. Regular PDRs can help focus employees whilst also highlighting any potential frustrations.
Company Benefits - Although salary remains extremely important, other factors are now given greater importance when it comes to choosing an employer. For example, do you offer private health insurance, child care voucher schemes, free coffee, or discounts on purchases or can you offer flexible working hours or work-from-home options?
Well-being - The physical and mental well-being of employees is crucial for any organisation. Whether your organisation can offer discounted gym subscriptions, cycle-to-work schemes, or access to mental health support maintaining the well-being of your employees results in a more engaged and healthy workforce.
Corporate Values - What your business stands for and how they demonstrate and instill the values throughout the organisation can also help to reduce turnover. Common core values in corporate culture include terms like Integrity, innovation, honesty, communication, etc. They need to be defined in line with your organisation and woven into the daily business for everyone.
Covid has undeniably had a significant impact on businesses and their approach to recruitment. Not only have many SME’s been faced with the need to manage reduced recruitment budgets and but over 82% of large enterprises (i.e. companies pulling in more than £50 million in annual revenue) have also reported reductions in spending on new hires.
As a result cost per hire and looking at ways to reduce it is more relevant now than potentially ever before.
What is your cost per hire?
To find out how our team could help you measure and reduce your cost per hire check out our IRIS networx solutions.