Meaning & Definition
Cost-per-hire (CPH) is a human resources metric that calculates the total cost incurred by an organization to recruit and hire a new employee. It’s an important key performance indicator (KPI) that helps HR professionals and organizations understand the financial implications of their hiring processes and evaluate the efficiency and effectiveness of their recruitment strategies. CPH is typically expressed as a monetary figure, and it can be used to analyze recruitment costs at various stages of the hiring process.
The formula to calculate Cost-Per-Hire is:
Cost-Per-Hire (CPH) = (Total Recruiting Costs) / (Number of Hires)
Key points related to Cost-Per-Hire
- Total Recruiting Costs
These are all the expenses associated with the recruitment and hiring process. They may include advertising and job board fees, agency or search firm fees, internal HR and staff salaries, recruitment technology and software costs, travel expenses for interviews, background checks, pre-employment assessments, and any other expenses directly related to hiring.
- Number of Hires
This represents the total number of new employees hired during a specific period, typically a month, quarter, or year.
- Time Period
Cost-per-hire can be calculated for different time periods, depending on the organization’s needs. Annual CPH is common, but shorter intervals can provide more frequent insights into recruitment efficiency.
- CPH Variations
Depending on the complexity of the hiring process and the level of the position being filled, CPH can vary significantly. For example, executive-level hires may involve higher costs due to specialized search firms or extensive interview processes.
Organizations often use CPH figures to benchmark their recruitment costs against industry standards or competitors. This helps in assessing whether their hiring process is cost-effective and competitive.
- Cost Reduction
Reducing CPH is a common goal for many organizations, as it can result in cost savings. Strategies to lower CPH may include optimizing job advertising channels, improving the efficiency of the hiring process, and reducing turnover.
It’s important to note that while CPH is a useful metric for understanding recruitment costs, it should not be viewed in isolation. It is most valuable when considered alongside other HR metrics, such as time-to-fill (the time it takes to fill a job vacancy) and quality-of-hire (the long-term performance and contribution of new hires). Together, these metrics provide a more comprehensive view of an organization’s talent acquisition efforts and their impact on the company’s overall success.