Hiring employees is a big part of running a successful business. As your business grows, you’re going to need to hire more employees due to expansion.
It’s important to keep a close eye on your budget. One way to do this is to review what your cost per hire is.
To give you some perspective on what this may look like – companies in America spend an average $4,129 per hire. And the time it takes to fill positions is around 42 days.
In the same survey, it showed these companies have a 19% annual turnover rate and employee tenure sits at around 8 years.
In the UK, the average cost is £3,000. For some companies, this rate is alright. Yet, there are others that are feeling the financial burden it’s placing on their business.
Knowing your own recruiting costs will determine whether you’re overspending and need to lower your cost per hire.
In this case, you’ll need to use the following methods to reduce your hiring expenses. But before we get into that, let’s take a look at how you can determine the cost per hire for your company.
What Factors Determine Your Cost Per Hire?
Now, there are two key areas that play a role in your cost per hire: external and internal.
Your external recruiting costs will consist of things like:
- Agency fees
- Recruitment software
- Career Fairs
- Ad Costs
- Travel costs
- Signing bonuses
- Relocation expenses
- Pre-hire assessments
- Recruitment outsourcing
- Job sourcing
- Background checks and drug testing
Then for the internal expenses, it will consist of things like:
- Full-time internal recruiters
- Referral rewards
- In-house recruiting staff
- Productivity costs
- Total number of hires
Next, let’s review how you can calculate your company’s cost per hire.
Calculating Your Cost Per Hire
As we mentioned, there are many factors that can play a role in how much you end up spending on a new hire. External costs are the most obvious expenses that are expected during recruitment.
However, one area that many businesses overlook is internal expenses – particularly productivity costs. For example, how much your teams’ productivity is impacted by new hires.
When you hire a new employee, are you having managers or key employees work closely with them? If so, then you’re taking away their time that would otherwise be spent performing their regular duties and tasks.
Then there’s the fact you have to wait for your new hire to get up to speed before they begin increasing their own output. Overall, there’s a reduction in productivity for each new hire so keep this in mind.
As for calculating your cost per hire, all you have to do is follow this formula:
External Costs + Internal Costs / Total Number of Hires in a given time period.
So if you’re hiring 5 employees within the same month and have external costs of $3,000 and internal costs of $2,000, then it’ll look like this:
$3,000 + $2,000 / 5 = $1,000 per hire.
It’s very simple. But the hardest part is calculating the internal and external costs accurately. So here are some tips for gathering this important data.
Best Practices for Managing Cost Per Hire Data
In order to properly reduce your cost per hire, you need to manage certain data so you can keep an eye on how much you’re spending.
It’s recommended that you examine your cost per hire on a regular basis. For example, the expenses for process improvement, automation and technologies, and events for recruitment.
It’s also important to note that not all expenses are bad – some can help make the recruitment process faster and more efficient.
Next, you have to analyze the cost per hire for each department and position. For instance, you may find that the costs are higher when recruiting for leadership positions.
Then determine your cost by the source of hire. All this means is identifying which mediums give the most effective results. Don’t forget to consider costs pertaining to the context of other metrics relating to recruitment, such as the quality of hire and time to fill.
Finally, use the data you collect to make strategic adjustments to your recruitment process. Maybe you can invest in better tools and job boards.
Now, it’s time to review what you can do to reduce cost per hire.
1. Create a Talent Pipeline
When you’re looking for new employees, you’re going to run into a fair share of interested talent. Although you can’t hire them all, this doesn’t mean you shouldn’t keep them around.
One way to do this is by creating a talent pipeline. You can do this by developing a talent community you can tap into when the need arises.
For example, you can have a group on social media or a forum where qualified candidates are invited to join. Then whenever a position opens up, you can go here to find talent vs relying on expensive job boards and advertisements.
2. Make Use of Your Employees
Another way to tap into your resources is to use your employees to help you recruit. One way you can do this is by asking your workers to refer talent for open positions.
In one study, it showed employee referrals produced more hires than other recruiting sources.
What’s great about using employees to find talent is that they know your business and tend to have a good idea of what your company is looking for. They also know the work culture and who would likely fit right in.
In order to make the most of your employee referral base is to create a strong employment brand. This will make it easier for your employees to find interested prospects.
The perception the world has of your business as an employer is crucial here. For instance, in your marketing, you can include videos of behind-the-scenes access to the workplace to show people you’re a great place to work.
Include your employees in the video to help show the enthusiasm they have for working in your organization.
3. Perfect Your Onboarding Process
Say you succeed in lowering your cost per hire rate. Yet, you struggle with keeping your new hires for longer than 6 months. This means you’re spending just as much, if not more, than before you reduced your expenses.
One way to boost your retention rates and lengthen tenure is to improve your onboarding process. For example, you can use tools like eversign to automate the signing of documents.
Whatever you can do to make the process convenient is key. Also, it’s important to offer online features, such as easy-to-search employee handbooks, guides, and video tutorials.
The easier and more thorough your onboarding is, the more likely new hires are to hit the ground running when the time comes.
4. Automate Your Applicant Screening Process
There’s a lot you can learn about a candidate well before you call them in for an interview. And in some cases, the information you obtain beforehand can save you time and money on interviewing and hiring the wrong applicant.
How can you do this? By automating your screening process. There are a number of tools you can use to help.
For example, you can use Google forms to create screening questions to help weed out the applicants that aren’t the right fit. The key is coming up with the right questions to ask to make this process more efficient.
Also, by automating the screening, you can free up your time to focus on interviewing qualified candidates.
5. Take Advantage of Social Media
Just about everyone’s on one social media platform or another. So why not use these networks to you know...network?
There are several channels you can use for your recruitment processes, such as LinkedIn, Twitter, Facebook, Snapchat, and Instagram.
There are two ways you can use it – build your employer brand and to find and recruit candidates. You can easily advertise open positions (using paid and free methods).
You can use a mix of videos to show what a day in the office is like at your company. Or even blog posts that speak on the culture at your business and the benefits of working there.
The more awareness you bring to your organization as an employer, the easier it’ll be to attract many applicants when the need arises.
Hiring the Best Talent at the Best Cost
Now that you have a better idea of how to reduce your cost per hire, it’s time to make it happen. You have the insights and tips you can use to get started making changes to your recruitment process.
Begin by calculating what you’re already spending per new hire so you can set a new goal. The internet is an excellent tool for reducing your cost per hire – from social media to video chat.
So get creative and let us know in the comments which methods you end up using and how it works out for your business!