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Cost-per-Hire and How to Reduce It with Recruiting Automation

Posted by
Nupura Ughade
May 19, 2023

The shift in candidate expectations to a more retail-like experience is here to stay. And TA teams are tasked with operating leaner and more efficiently than ever are expected to deliver those exceptional experiences regardless of budget or team size. 

On top of that, hiring costs add up quickly, whether you're recruiting for 10 roles or 500.

What is the average recruiting cost-per-hire?

The average cost-per-hire in the United States is $4,129. Experts estimate that the realized cost per hire is between 1.3 and 1.5x the employee’s salary plus loss of productivity due to the time it takes to bring on someone who is clearly needed within an organization.

To gain a better understanding of how to decrease cost-per-hire and enhance ROI, let's explore what it is and how it becomes so bloated within many organizations.

Understanding cost-per-hire

Cost-per-hire is a talent acquisition metric that calculates the total cost incurred by a company to hire a new employee. This metric takes into account all the internal and external expenses associated with the recruitment process.

Cost per hire is so much more than an easy number at first glance. I mentioned the total hiring costs above, but that doesn't take into account so much of the costs that can really impact an organization, particularly those with high-volume hiring needs.

Let's take a quick refresher into how cost per hire is calculated and what else you may want to consider to help set goals for reducing this important metric.

How to calculate cost-per-hire

To calculate the cost-per-hire, you need to consider both internal and external costs incurred during the recruitment process. Here are the steps to calculate cost-per-hire:

  1. Add up all the internal costs: These costs include the time and resources spent by the talent acquisition team and hiring managers, such as recruiter salaries, the cost of conducting background checks, administrative costs such as printing and mailing, and other pre-employment screenings.
  2. Add up all the external costs: These costs include expenses such as job postings, recruiting events, agency fees, and any other expenses incurred to attract and hire new talent.
  3. Add the total internal and external costs: This is the total amount spent on the recruitment process.
  4. Divide the total recruitment cost by the number of new hires: This gives you the cost-per-hire.

The formula for calculating cost-per-hire is:

Cost-per-hire = (Internal Costs + External Costs) / Number of New Hires

Factors to consider when interpreting the cost-per-hire metric

Cost-per-hire is an essential metric for evaluating recruitment efficiency. However, it’s important to note that factors such as scarcity of talent, availability of candidates per job role, and seniority when sourcing for open positions can have a significant impact on the cost of hiring.

Cost-per-hire is inextricably linked to other metrics like time to hire such as time-to-hire and time-to-fill. To get a complete picture of your recruitment process and to reduce cost-per-hire effectively, it’s important to consider the realized costs associated with a slow hiring process and how they affect your core hiring metrics.

Apart from the internal and external hiring costs mentioned above, there are several other hard-to-measure costs such as reduced productivity and poor candidate experience due to delayed hiring. AI recruiting and automation help you improve hiring efficiency overall and reduce costs all across.

How to reduce cost-per-hire with recruiting automation

Savvy talent leaders are leveraging the power of AI and automation to keep costs in check. In particular, these recruiting automation strategies have significantly reduced cost-per-hire for Sense customers:

1. Diversify your sourcing channels to reduce cost-per-hire

Over the years, you have invested significant time and resources into building your candidate database. However, a large portion of the database stays dormant at any given time. Well-integrated AI chatbots enable you to activate candidates, effortlessly update their information, and transform your recruitment database into a top source of talent. This reduces over-reliance on job boards and gives you better ROI on your candidate database — ultimately resulting in reduced costs! 

2. Reduce cost-per-hire by personalizing every interaction

You know that candidate engagement is critical to reduce drop-offs and speed up time-to-hire before the competition can steal talent. After all, research shows that candidates today are applying to 12 jobs at once. If you're slow to respond, it seriously increases the likelihood of your competition swooping in to make the hire. Of course, it's impossible for recruiters to manually send personalized messages to every candidate throughout their journeys.

Texting automation and email automation can help you achieve this goal at scale by enabling you to send personalized and timely candidate communication at each hiring stage. To reach ideal candidates faster, ensure precise targeting with search and filter capability. 

3. Communicate at the right times to reduce hiring costs

I already touched upon how important personalized communications are to candidate engagement, but sending communications at the right time is equally as important. As I mentioned, candidates are applying to 12 jobs at once. Getting the right message to talent at the right times is essential. 

The right talent engagement platform empowers you to automatically activate messages and workflows based on candidate profile data or when they complete a certain action in the journey. For example, send a timely message after receiving the application, and communicate hiring timelines. Effective communication doesn't stop at the job offer. It plays a critical role during onboarding and throughout the talent engagement lifecycle with your organization.

4. Make data-driven hiring decisions 

Analytics play a critical role in identifying holes, gaps, or opportunities to reduce average cost per hire. In our experience, here are some of the areas where TA teams can make the biggest improvements: 

  • Watch performance over time and eliminate sourcing channels that don’t deliver.
  • Look for patterns in candidate dropoff and examine your hiring process to see if/how bottlenecks and delays could be a factor.
  • Look at data or, if your organization doesn’t have data past hiring dates, conduct some research into employees who haven’t worked out in the past. Look for patterns or inconsistencies with these employees that can be tightened to help your team make higher-quality hires.

5. Invest in the right talent engagement technology

One-off point hiring solutions can offer quick band-aids for some recruiting challenges, but they can’t paint a complete picture to help make the improvements noted throughout this post. And the result can mean way more $$$ and fewer quality hires for your organization. Plus, add in the stress and hours learning multiple platforms, dealing with multiple customer service teams…

In other words, bloated cost-per-hire. 

Today’s most cutting-edge talent engagement platforms streamline both the recruiter and candidate experiences, saving countless hours per month and helping to deliver exceptional candidate experiences.

Here at Sense, we’ve had some customers with so many point solutions, they’ve actually saved money moving to our platform! Forward-thinking TA teams today are doing their research and finding which talent engagement platforms deliver the best experiences and most importantly, the best ROI. They leverage technology to strategically add time back onto recruiter calendars so they can focus on what they do best: build and nurture relationships. Today’s leading talent engagement platforms (yes, like Sense!) do all of this seamlessly while also integrating with your ATS. It’s a powerful way to maximize the value of your ATS and keep recruiting teams of any size operating powerfully and efficiently to reduce cost-per-hire and improve other core hiring metrics.

Ready to slash your cost-per-hire?

AI and automation have proven to reduce cost-per-hire by making the recruitment process more efficient, improving candidate quality, reducing time-to-hire, providing better data insights, and reducing administrative overhead.

When it comes to reducing recruiting costs with automation, even small and simple process improvements matter! To help you get started, explore our ready-to-use and customizable email templates.

If you're excited and ready to begin leveraging smarter technology to improve cost-per-hire and generate more ROI from your talent tech stack, we'd love to meet you. Click here to schedule a demo with our team.

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