Scenario
Your organization is looking to expand and open a new warehouse location. As the HR leader, you’ve been tasked with creating a workforce strategy with estimated costs. This is the first time you are opening a warehouse with this organization. You wonder if you should keep it internal or outsource the recruitment to a staffing agency. Using an HR metric will make it easier to make this decision.
HR metric solution: Cost-per-hire
Cost-per-hire is the total dollar amount spent on recruitment during a period of time. This HR metric should include the total cost for both internal and external recruiting. Internal recruiting costs refer to the expense of your in-house recruitment team, like compensation and training. If your organization has an employee referral bonus program or offers signing bonuses, they should be factored in as well. External recruiting costs encompass any expenses paid to vendors for their services in the hiring process. Staffing agency fees, job board postings, drug/background screenings, recruiting events, ATS fees, and assessments should all be included. When recruiting for more specialized roles, external costs can skyrocket. Relocation expenses, visa fees, and travel costs for interviews are just a few examples.
How to calculate
The standard formula to calculate cost-per-hire is to take the total of your internal and external recruitment costs and divide it by the total number of hires during that period. You can calculate this metric with all the jobs filled over the past year. In this particular case, it would be more beneficial to only look at jobs that would be hired at a new warehouse location. The highest level role will be the location manager. We would not want to skew our numbers with high-level recruitment costs that would not be needed.
Unfortunately, there’s no easy or quick way to calculate this metric. It can be a time-consuming task to gather all the data needed for the total cost of recruiting. Maintaining a budget that tracks expenses will make it easier. Don’t stress yourself out if you can’t get the exact numbers. This is meant to be an estimated cost that provides a guide for strategy. Just make sure to track how you got to those numbers. It will make it easier for the next time you calculate cost-per-hire and support the data integrity of your metric.
Analyzing the data to find a solution
The most important step. Once the number is calculated, compare it to the staffing agency’s recruitment fees. It may be more affordable to keep the recruitment in-house, but other factors need to be taken into consideration. For instance, does your staff have the network and knowledge to recruit in a geographic location? To save on training costs, a staffing agency could be the better option.
Cost-per-hire can be beneficial in more ways than just when your organization is looking to expand. If you find that your metric is trending higher than your benchmarks, there may be opportunities to improve your time-to-fill. You can also use cost-per-hire during budget cuts to identify areas where expenses can be minimized. Additionally, it would also be included when you determine the ROI of your recruitment efforts.
Calculating cost per hire is a tedious task, especially if you have a robust recruitment program. It will be worth the time and energy once the metric is calculated. Having an HR dashboard can make it easier. Sign up today for a free demo of our automated HR dashboard.
