How to Calculate Cost-Per-Hire (and Prove the Value of Your Recruiting Efforts)

Effective recruitment strategies are essential to the health of an organization. HR professionals need to be able to prove their value in business terms. If not, company leadership may choose to allocate resources elsewhere. The value of effective talent acquisition is visible through the quality work that your great hires do. Taking this one step further and attaching a dollar value to projects elevates HR to its deserved status as a central business function.

Here’s how to calculate the value of your recruiting efforts:

Understand cost-per-hire

Cost-per-hire is a good way to gauge the financial value of your recruitment efforts. CPH offers a standardized way of measuring the value of recruitment. In its essence, CPH is the “mean average of total costs divided by the number of hires,” according to a guide by An American National Standard for Human Resource Management and the Society for Human Resource Management. But what do these “total costs” entail? Simply put, this is the sum of external costs plus internal costs. Let’s break this down a bit. External costs are those that represent spending outside of the company. Examples are fees paid to advertising agencies or the expenses related to a job fair. Internal costs cover everything that goes on inside of the company, including the salary and benefits of the new employee. It also includes time costs, such as the time needed to draft job postings and conduct interviews. The final component of the CPH equation is the total number of hires. Consider the hires made only in a certain time period for greater clarity and better insights. In summary, CPH is total costs divided by the total number of hires in a designated time period. Use this metric to help calculate the value of your recruitment efforts. Read about CPH in more detail in the Cost-Per-Hire: American National Standard guide.

Other ways to identify recruiting value

CPH is the main way to measure the value of your recruitment efforts. There are other approaches that can help you gain other useful insights too. Analytics in HR mentions figuring out an employee’s lifetime value – a highly qualified candidate with the right skills for the job will generate more value for the company than someone who only has some of the qualifications. Calculating lifetime value takes into account all the resources HR used to find and bring the candidate on board, from the time it takes to fill the position to attrition in the first-year. For even more detailed insights, you can break down each component of the recruiting process to determine return on investment, as Recruiter.com noted. The categories you can measure include the speed with which the hiring manager provides feedback on candidate’s as well as the “interview-to-offer” ratio. Determining HR value in financial terms can seem overwhelming, but luckily there are several ways you can go about gaining insights in this area. Try the methods above to make a stronger business case for in-depth recruitment efforts at your company.