August 24th, 2020

Cost Per Applicant And Cost Per Hire

Hiring is a complex process. It involves a lot of teamwork, individual effort, and metrics that are important to you. Each of them tells a story about how efficient your recruitment process is. How much do you spend on your applicants and new hires?

In this article, we’ll cover cost per applicant and cost per hire. There are similarities between the two, but they represent different metrics.

What’s the difference?

  • Cost Per Applicant - Let’s pretend that you want to hire a software engineer. Your CPA includes everything you’ve spent up to the point of hiring a candidate. Payment for ads on social media, recruiting tools such as ATS, etc. Everything your hiring team spends on the selection process and getting candidates sums up this metric.

    If you like formulas, it would be something like this: All recruiting costs added up / A total number of qualified candidates

Don’t be discouraged if the final result turns out to be too high. Hiring people in the IT industry can be challenging, especially if you are after senior and experienced developers. It should not be a surprise if you receive a small number of applications, regardless of the invested money and resources.
  • Cost Per Hire - Once you finally hire a software engineer, you’ll have additional costs. Those include, but are not limited to: expenses of onboarding, required training, and expected monthly salary. In other words, your CPH includes everything you’ve spent for an employee, before and after you’ve hired them.

    The formula is a bit different than the previous one. It dates from 2012., and was created by The Society of Human Resource Management (SHRM) and the American National Standards Institute (ANSI):

**Internal recruiting costs + external recruiting costs / total number of hires**

You should calculate it for a specific period: monthly or annually. There’s a metric related to cost per hire that for some companies might prove even more useful. We are talking about the recruiting cost rate (RCR). It’s a topic for another time, but you should know that it can bring value to your recruitment process. 

Cost Per Hire Benchmark

A survey done by The SHRM and ANSI shows that the average cost per hire is $4.000. The number mostly depends on the amount of open positions. Another aspect is your time to fill. The longer it is, the more resources you spend. If your benchmark value is between $3.000 and $5.000, it’s considered good.

Why Are These Metrics Important?

They help you plan your budget effectively for the company’s future expenses. When you start measuring them for the first time, you might not see the full picture. Over time, you will be able to compare them on a monthly or annual basis. Then, you’ll see if the numbers add up and what needs to be changed.

There’s a high chance that you are spending more than required on some segments of your recruitment process. If you figure out the source of unnecessary expenses, you can then invest money more effectively.

As a recruiter, you won’t make a mistake by devoting your time and energy to tracking other HR metrics, too. Each of them is there for a reason, to help you understand the efficiency of your recruitment process.

About iglooHR
Our goal is to provide the best tool to organize your recruitment process. We strive to innovate traditional Applicant Tracking Systems. With iglooHR, you get all the essential tools for efficient recruiting.