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One of the most substantial expenditures that a company incurs annually is the budget earmarked for each recruitment process. Hence, the cost per hire is a highly critical aspect that should be carefully considered for maximizing the calculation.
Knowing the cost per hire amount will provide numerous advantages to the company. The HR team can more easily determine the appropriate recruitment method according to the available funds, so the budget spent will be much more efficient.
Calculating the cost per hire is not a difficult task. If you wish to understand how, in this article Algobash has provided complete information about the formula and the things to consider when calculating it.
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What is the Cost Per Hire?
Cost per hire refers to the total budget incurred to recruit a new employee into a company. This is an important metric in calculating recruitment budgets. These includes many aspects such as job postings, screening, selection, onboarding, salary, and more.
Why is Cost Per Hire Matter?
As mentioned above, calculating cost per hire is important because it offers several benefits. This calculation can optimize the following:
1. Determine the Recruitment Budget
Determining the recruitment budget accurately is the first thing you can achieve by calculating the cost per hire. By knowing the budget, your company can estimate the cost required if the recruitment process is repeated. Additionally, this can help HR in adjusting the budget to the available funds.
2. Measure Recruitment Team Performance
By calculating cost per hire, your company can also see and measure how effective the HR team’s performance is in carrying out the recruitment process. One way to see if the recruitment team’s performance is running optimally is to see how they manage the strategy for the recruitment budget.
3. As a Benchmark
The third benefit of cost per hire is that it can be used as a benchmark or comparison of recruitment costs. Whether the cost incurred is too large or too small, you can also compare it with other companies.
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How to Calculate Cost Per Hire?
Calculating the cost per hire is not difficult, but it may require sufficient time as it needs to ensure that every budget used is accurate.
To calculate it, you simply need to accumulate all recruitment costs, both internal and external. Then divide it by the number of candidates your company recruits.
For a clearer understanding, here is the formula for calculating cost per hire:
Cost Per Hire Formula
Cost Per Hire = (Internal Recruiting Cost + External Recruiting Cost) ÷ Total of Candidates Recruited
Internal and External Recruiting Cost Components
In the formula mentioned above, it is stated that internal and external costs need to be calculated. So, what are the components that are included in internal and external costs? Here is the detail.
1. Internal Recruiting Costs
Internal costs refer to the amount of cost for the recruitment process involving internal company elements. Examples include:
- Salary
- Allowance
- Bonus
- Career development for the recruitment team
- Administration
- Software and hardware used for recruitment, including applicant tracking system (ATS), interview software, and others.
2. External Recruiting Costs
Contrary to internal costs, external costs refer to the total amount of cost for the recruitment process involving elements from outside the company. Some examples include:
- Cost from third-party services such as headhunters, agencies, consultants, and psychological assessment providers.
- Job vacancy advertisements on job portals.
- Costs for conducting events such as job fairs or others. Operational costs such as travel expenses and others.
Note: Not all of the above-cost components are used by all companies. Therefore, the accumulation of these components needs to be adjusted to your company’s conditions.
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How to Reduce Cost Per Hire?
Every company wants to minimize the budget allocated for recruitment expenses while still achieving optimal results. This is a tough task because one recruitment process involves many aspects and stages.
However, there is an effective solution to reduce recruitment expenses – by cutting down costs on screening, testing, and interviewing.
You can reduce those recruitment costs by using Algobash’s pre-employment testing software. With a comprehensive set of features specifically designed for the recruitment process, Algobash can streamline your screening, skill testing, and interview process, ultimately reducing your cost per hire. All through a single software. You won’t have to use traditional methods that consume a lot of resources.
Algobash also boasts a talent pool of highly-skilled and ready-to-work candidates who can fill your company’s technical positions, including programmer, web developer, frontend and backend, and many more.
Presently, Algobash is trusted by numerous companies from various industries including corporations, startups, and banks. If you’re interested in using it, you can visit Algobash.com for complete information.
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