Cost Per Hire Calculator

How to Use the Cost per Hire Calculator

Easily calculate your hiring costs with our straightforward Cost per Hire Calculator. Just follow these steps to get a clear view of your recruitment spending:

Step 1: Enter Basic Info

• Total Hires in Period: Start by entering the number of hires made during the period you want to analyze.
• Average Hours per Hire: Estimate the average time (in hours) spent recruiting each hire, including screening and interviews.

Step 2: Add Internal Hiring Costs (Annual)

This covers your in-house HR team’s recruiting expenses. For each category, enter the total annual cost:

• HR/Recruiting Staff Salaries: Enter the total yearly salary costs for HR or recruitment staff involved in hiring.
• Employee Referral Awards: Include any bonuses or rewards given to employees for successful referrals.
• Signing Bonuses: Add one-time signing bonuses paid to new hires.
• Interview Costs: Sum up any related expenses, like travel or meal costs for interviews.

Step 3: Add External Hiring Costs (Per Hire)

Capture external recruitment expenses per hire:

• Job Board Fees: Enter costs for job ads on various job boards.
• ATS Fees: Add Applicant Tracking System (ATS) costs, if used.
• Background Check and Drug Testing: List the costs for each candidate’s background checks or drug testing.
• Consulting or Third-Party Fees: Include fees paid to external recruiters or consultants.
• Relocation and Sign-On Bonuses: Add relocation assistance and any sign-on bonuses offered.

Step 4: Click “Calculate Cost per Hire”

Hit the Calculate Cost per Hire button, and instantly see a detailed breakdown of your hiring costs.

With these insights, you’ll have a clear view of what each hire costs, helping you streamline hiring expenses and make data-driven decisions.

How to Calculate Your Cost per Hire: A Practical Approach for Smarter Recruiting

Calculating your cost per hire is more than just crunching numbers; it’s about gaining insights into where your recruitment budget is going and finding opportunities to make smarter financial decisions. Whether you’re a small business aiming to maximize every dollar or a larger organization refining its hiring processes, understanding cost per hire offers critical insights for budget planning and strategic hiring.

This article will walk you through everything you need to know to calculate cost per hire, including practical steps and considerations.

Why Knowing Your Cost per Hire Matters

The cost-per-hire metric gives you a realistic look at how much it actually costs to bring a new employee into your company. With this insight, you can:

• Optimize Budgets: Identify the most and least cost-effective parts of your hiring process.
• Improve ROI: Adjust strategies to improve the return on recruitment investments.
• Forecast Accurately: Plan better for future hiring cycles, especially if you expect rapid growth.

For HR managers and business owners, understanding these details not only helps cut costs but also supports a more efficient, targeted hiring strategy.

Breaking Down Cost per Hire: Internal and External Costs

Cost per hire is calculated by combining two main cost categories: internal and external costs. Let’s explore each in detail.

Internal Hiring Costs

Internal costs refer to everything spent within your organization to find, attract, and hire a new employee. Here’s a closer look at the key components:

1. HR Salaries: One of the biggest contributors to internal costs is HR staff time. Calculate the portion of your HR team’s salaries allocated to recruiting. If a recruiter’s primary role is hiring and they spend roughly half of their time on it, that portion of their salary counts toward the hiring cost. For example, if a recruiter’s salary is $60,000 and they spend 50% of their time hiring, you’d allocate $30,000 as a hiring cost.
2. Referral Bonuses: If your company offers incentives for employee referrals, add the total amount spent on these bonuses during the hiring period. Employee referrals can often lower the overall cost by reducing the need for external sourcing, making them an efficient use of internal funds.
3. Interview Costs: Hosting interviews, especially for higher-level roles, may incur additional expenses. These could include candidate travel, meals, or hotel accommodations, especially if you’re interviewing out-of-town applicants. Such costs are often necessary but can add up quickly.
4. Signing Bonuses: Many businesses use signing bonuses as a way to attract top talent. While these are one-time payments, they’re an essential part of the hiring cost and should be included in the internal category.

External Hiring Costs

External costs refer to all expenses paid to third parties in the hiring process. These are typically one-time costs associated with individual hires or specific hiring periods. Here are some common external cost elements:

1. Job Board Fees and Advertising: If you’re posting on job boards or using social media ads to attract candidates, these costs can quickly become substantial. Track advertising fees, especially across multiple platforms, to see how much each channel contributes to your hiring expense.
2. Applicant Tracking System (ATS) Fees: Many organizations use ATS software to streamline hiring processes. Whether you pay a monthly or annual fee, these costs should be factored into your overall calculation. Some companies divide ATS costs per hire, while others consider it as an ongoing operational expense.
3. Background Checks and Drug Testing: For roles requiring a high level of security or trust, background checks and drug tests are often necessary. While the per-candidate cost might seem small, the total can add up if you’re hiring frequently.
4. Consultant and Recruitment Agency Fees: Engaging an external recruiter or staffing agency is common, especially for specialized or executive roles. Fees for these services are typically based on a percentage of the new hire’s salary, so high-level roles can come with significant recruitment costs.
5. Relocation Costs: When attracting talent from afar, relocation costs may be necessary to help new hires move closer to your workplace. This cost varies widely depending on the role, location, and distance.

Step-by-Step Formula for Calculating Cost per Hire

Now that we’ve covered the basics, let’s move on to calculating the cost per hire. Follow this simple formula:

Cost per Hire = (Total Internal Hiring Costs + Total External Hiring Costs) / Number of Hires

Here’s how it works in practice:

1. Add Internal Hiring Costs: Sum all internal costs, including HR salaries, referral bonuses, interview expenses, and signing bonuses.
2. Add External Hiring Costs: Add up all expenses from job board fees, ATS fees, background checks, and any third-party recruiter or relocation costs.
3. Divide by Number of Hires: Take the combined total of internal and external costs, and divide it by the number of hires for the period you’re analyzing.

Example Calculation: Putting It All Together

Let’s say you hired 10 people over a quarter. Here’s a breakdown of your costs:

• Internal Costs:
  • HR salaries allocated to hiring: $25,000
  • Referral bonuses: $3,000
  • Interview costs: $2,000
• External Costs:
  • Job board and advertising fees: $1,500
  • ATS fees: $3,000
  • Background checks: $1,000
  • Recruitment agency fees: $7,500

Total Internal Costs = $25,000 + $3,000 + $2,000 = $30,000
Total External Costs = $1,500 + $3,000 + $1,000 + $7,500 = $13,000
Total Costs = $30,000 + $13,000 = $43,000

Now, divide the total cost by the number of hires:

Cost per Hire = $43,000 / 10 = $4,300

With a clear understanding of each cost component, you can see where the majority of your recruitment budget is going and adjust your strategy accordingly.

Use Connecteam to Streamline Your Hiring Process and Control Costs

Calculating the cost per hire doesn’t stop at just budgeting for expenses – it’s also about making the entire hiring process more efficient and impactful. Connecteam offers a suite of tools to help streamline recruitment, onboarding, and employee management, allowing you to reduce unnecessary spending and improve team alignment. Here’s how Connecteam can make a difference:

• Track Recruitment and Onboarding Progress: Connecteam’s onboarding tools include customizable checklists and task assignments, allowing hiring managers to oversee every step of the process. This way, you ensure each new hire receives a consistent experience, and you avoid costly oversights.
• Provide Comprehensive Training Resources: With Connecteam’s training module, you can create and assign interactive training materials, quizzes, and policy documents. Tracking completion ensures that new hires are fully prepared and compliant, minimizing any gaps that could lead to additional onboarding costs.

• Enhance Team Communication: Connecteam’s in-app messaging and team channels ensure that everyone involved in the hiring process is on the same page. This centralized communication helps prevent delays and confusion, keeping your hiring costs under control.
• Efficient Scheduling and Time Management: Scheduling tools within Connecteam enable you to organize shifts, coordinate training sessions, and manage new hires’ schedules seamlessly. This feature is especially valuable for setting up interviews and initial training without juggling multiple platforms.

Ready to elevate your hiring process and manage costs more effectively?

Try Connecteam for free and see how our platform can make each hire easier, smarter, and more cost-efficient.