A Tech Employer Guide to Minimizing the Cost Per Hire

A tech recruiter's guide to minimizing the cost per hire - WeCP Blog

Finding the right candidate for your company is challenging enough, but add the budget constraints to the mix and you have a full-blown crisis situation. So what steps can you take to guarantee better hires and an optimal cost per hire?

Well, optimizing the recruitment funnel should be your priority. With efficient advertising strategies, better screening methods, effective communication channels, automation, and more, your company can take its recruitment process to the next level. Moreover, an optimized funnel can help you cut back significantly on costs.

Also read: What is a Recruitment Funnel

But how can you track the efficiency of your recruitment funnel, and how can you monitor your progress? Well, choosing to optimize the right recruitment metrics can be of great help – especially the cost per hire (CPH) metric. By tracking your company’s CPH, you can monitor the efficiency of the recruitment funnel, and by minimizing the hiring costs, you can cut back on expenses significantly.

What is the cost per hire metric?

Cost per hire or CPH is a human resource metric. In simple terms, the cost per hire is the total recruitment cost a company bears to fill a vacant job position. In the tech industry, it corresponds to the costs associated with filling a tech position. Usually, companies measure the cost in financial terms, as opposed to accounting terms.

Rather than calculating the CPH of every single position, recruiters obtain an approximation by taking an average. This is obtained by calculating the total hiring costs for several positions in a timeframe and dividing them by the total number of hires. The result is the average cost per hire for the concerned company.

How to calculate your company’s cost per hire

As with other HR metrics, companies may choose to calculate their CPH metric in different ways. The general formula is:

Cost per hire = (total internal recruiting costs + external recruiting costs) / (total number of  hires in a given time frame) Click To Tweet

There are two different types of costs included in the formula: internal costs and external costs. We’ll explore these in detail in the next section.

While the general definition of a cost remains the same, companies have different opinions on what they consider to be a cost. Consequently, costs may differ across various setups and companies often have different CPH as a result.

For example, the cost per hire for a tech company might differ from a marketing agency. When it comes to judging your CPH, be sure to check the benchmarks for your particular niche rather than general statistics.

What are internal recruiting costs?

To better understand the cost per hire formula in detail, let’s first consider internal recruiting expenses. Internal recruiting costs cover both the operational costs of recruitment and the costs associated with paying recruitment teams.

Some of the internal costs of recruitment include:

  • Salaries, benefits, and training costs of the recruitment staff
  • Bonuses for employee referrals
  • Interview costs (these might include an hourly or daily salary of interviewers and other hiring staff)
  • Physical infrastructure costs (including rental space to conduct interviews, and other hiring venues, etc.)
  • Government fees
  • Other talent acquisition system costs

What are external recruiting costs?

Alongside internal recruiting costs, companies have external recruiting expenses that factor into the total recruiting costs. As the name gives away, the external recruitment costs include the expenses from sources outside of the organization.

The external recruitment costs may come in the form of:

  • Third-party agency fees
  • Advertisement and marketing costs
  • Recruitment software and hardware costs
  • Charges related to job fairs and career fairs

External recruiting costs also include costs associated with the candidate such as:

  • Travel costs (related to recruitment drives)
  • Relocation costs
  • Signing bonuses
  • Background and drug test expenses

Why is the cost per hire metric important?

The cost per hire metric is extensively used by all types of organizations, whether public, private, or government. The metric provides recruiters and hiring managers with essential data that help influence future hiring strategies and campaigns.

The average CPH statistics for different industries reveal that the tech industry has one of the highest hiring costs. A company’s cost per hire showcases how much the company is willing to spend to find the perfect fit. Thus, an annual CPH analysis allows companies to efficiently plan next year’s company recruitment budget and corresponding recruitment plans.

Keeping track of your company’s annual CPH allows recruiters to pinpoint inefficient use of the recruitment budget. Consequently, you can single out the areas that are incurring the highest costs. Recruiters can test new recruitment strategies and techniques and monitor their effectiveness by referring to the cost per hire.

Factors influencing the cost per hire

Earlier, we discussed how companies may have different CPH from one another, even within a given industry or sector. One reason for this is because many different factors influence a company’s total hiring costs.

The most common factors to influence CPH include the industry type, staff size, and geographic location of your company. Additionally, the exact type and level of the vacant position also determines the total cost per hire for it.

For tech companies, the average CPH is $4,325, according to Bersin by Deloitte’s research. However, as mentioned earlier, these costs differ for other industries.

Here are some factors that may influence your hiring costs:

The size of your organization

Larger organizations typically have lower hiring costs. This is because of internal specialization in the company, in addition to more ease of access to resources. Conversely, smaller companies have a higher cost per hire in general.

Your company’s location

Companies located in metropolises typically enjoy an abundance of competent talent pools nearby. This translates into less searching and effectively lower operational costs. Conversely, it is typically more difficult and costly to find eligible fits in remote areas, as the talent pool is significantly limited.

The role you’re looking to fill

In general, the more important a job position is, the higher its cost per hire. This is because screening and interview processes for senior-level positions are far more extensive and resource-demanding than entry-level positions.

What are the benefits of minimizing cost per hire?

Well, an obvious benefit of reducing cost per hire is the money you save, but there are other advantages as well.

To reduce the cost per hire, recruiters must optimize the efficiency of the hiring process. By cutting out unnecessary elements from your recruitment funnel, the odds are that other recruitment metrics are looking better too.

This is because these metrics collectively indicate the health of your recruitment pipeline. A more efficient pipeline means better metrics! Some HR metrics other than the CPH include the time to fill, time to hire, and recruitment funnel effectiveness.

Also read: A tech recruiter’s guide to 100% interview to offer conversion

Additionally, reducing the CPH means that you can now safely decrease the recruitment budget. This allows companies to reallocate finances to other departments and optimize growth.

7 ways to reduce your cost per hire

Cost reduction is an integral part of running any successful business. Of course, some employers worry that cutting back on the recruitment process may lead to poor hiring. But if you optimize your recruitment funnel, the result is better hiring at lower costs.

This way we’re now going to cover strategies to cut back on recruitment costs without compromising on the quality of hires. Here are 7 ways to do so:

#1 Envision your ideal candidate

This involves identifying the persona for your ideal recruit – what should the perfect candidate look like? This entails mapping out the qualifications, qualities, cultural fitness, and technical experience an applicant should have.

You can gather the necessary information to identify the qualities that your ideal candidate should have through different communication channels. This includes focus groups, surveys, meetings with the hiring managers, and consulting your technical team.

You may also like: Five Ways to Improve the Shortlist Quality of your Candidates

Before setting out to find the ideal candidate, you have to actually know what to look for. Candidate personas help you determine precisely that. And when you know what you’re looking for, reduced hiring costs follow naturally.

#2 Screen candidates with skills assessment tests

Now that you’ve envisioned your perfect candidate, how do you sort through the pool of candidates to find the right one? Well, you’d need a reliable technical screening method, and resumes are rarely sufficient, especially in tech hiring.

Technical skills assessment is the most reliable and cost-effective screening tactic in tech recruitment. With the help of custom-made skills tests, recruiters can assess candidates’ skills and abilities to solve real problems. This helps determine their suitability for tasks in the workplace. Platforms such as We Create Problems help recruiters effortlessly design high-quality, cheat-proof, custom coding skill tests to screen candidates.

#3 Create employee referral programs

When it comes to hiring, leveraging your network is always a strategic move. But what if you took matters a step further and leveraged your employees’ networks too?

An employee referral program creates an opportunity for recruiters to find ideal candidates through the help of existing employees. Your own employees may have friends that are well-suited for the position, and your own team has a good idea of the workplace requirements. Thus, employees have strong potential to help recruiters find promising candidates.

Employee referral programs don’t just open up a window of opportunity, but also help you cut back on costs significantly. To encourage employees to participate in the referral program, consider offering incentives such as employee discounts and bonuses.

#4 Search your talent communities

Another method for reducing the cost per hire is by maintaining a talent pool. A talent pool is essentially a record of all the potential recruits you have previously interacted with in previous recruitment processes. These candidates might not have made the cut because, while promising, they weren’t fit for a particular job.

Using your existing talent community to search for possible hires reduces marketing and advertising costs dramatically. If you have a hunch that an old applicant might be perfect for a new position, go ahead and invite them to interview for the role.

#5 Use social media to your advantage

Social media is a powerful medium for spreading information – making it perfect for getting the word out about your job openings. Platforms like LinkedIn, Facebook, and Twitter help recruiters connect with niche audiences.

With the help of paid advertisements, you can minimize recruitment times and reduce costs by connecting directly with the right audiences. Facebook advertising, which runs on both Facebook and Instagram, has exceptional targeting capabilities. If you followed step #1 properly, then you already know what your ideal candidate’s persona is. Plugin some of these traits into your ad campaign to target them!

#6 Automate the review process

Resume screening is one of the earliest stages of the recruitment process and often the most tedious one. Manually sifting through a stack of candidate resumes takes time, and if you’re paying someone else to do it, then money too. So, it’s only natural to look for a way to optimize this stage.

Of course, automation is the most obvious, and effective way, to optimize resume screening. So that’s exactly what we’d encourage you to do. You can use online screening software online to find eligible talent pools in minutes, with comparative rankings too. Think of all the time and manual labor costs you’d save by automating this otherwise tedious process.

#7 Conduct virtual interviews

Earlier, we mentioned the interview venue as an external cost that adds to the total cost per hire. What if you were to forgo this and all the accompanying costs?

With the growing popularity of video interviewing tools such as We Create Problems, recruiters can effortlessly connect with candidates and conduct HD virtual interviews with real-time pair programming capabilities.

A recruitment platform provides many additional features to perfect the hiring process, including skill assessment tests to screen out unfit candidates pre-interview.

Final Word

Recruitment is trying enough as is, and simultaneously keeping costs on the low isn’t easy to pull off either. In tech especially, optimizing your recruitment process takes a great deal of time, strategy, and effort.

However, it’s certainly worth taking the time to optimize your recruitment funnel, because the results are more than worth it. To grow your business sustainably, a strong team is vital – a company is only as good as its employees.

Minimizing your CPH does more than just reduce your costs because the process of reducing the cost per hire involves optimizing the recruitment funnel. A coding skill platform helps recruiters dramatically improve the recruitment funnel by perfecting the screening process and reducing interview costs. Thus, achieving a minimized cost per hire goes hand-in-hand with perfecting your recruitment process.

Book a virtual tour with WeCP (We Create Problems) to learn how you can reduce your cost per hire and perfect your recruitment process. Schedule a demo today.

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