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How to reduce cost per hire?

How to reduce cost per hire?

Do you know your cost per hire (CPH)?

Knowing this figure can help you make better strategic and financial decisions and save your company money in the long run.

According to Glassdoor, an average employer in the UK spends about £3,000 and 27.5 days on hiring a new worker. The Society of Human Resource Management (SHRM) reported that in the US it’s a cost of over $4,000 and over 42 days.

Cost-Per-Hire (CPH) is a timely topic for Talent Acquisition (TA) professionals, many of whom are under pressure to deliver better quality hires with fewer resources. The amount of specialised roles that need to be filled is increasing but the applicant volume keeps decreasing as we’re on the edge of the biggest candidate shortage yet.

The good news is that by measuring the right data, you can gain control over your talent acquisition spend and develop strategies that increase the quality of your hires while saving money.

How to calculate Cost Per Hire?

To improve your TA processes and reduce your CPH, you will need to start by calculating what your CPH currently is. The metric consists of external and internal recruiting costs and it depends on your hiring volumes:

How to calculate cost per hire

Most organizations measure CPH using the SHRM’s formula:

cost per fire - formula

Note: The cost of the salary of the new hire should not be included in these calculations.

Understanding your CPH will allow you to benchmark your company against the overall industry averages and analyse the data by departments and type of positions. This information will let you determine if and if so, which parts of your talent acquisition strategy can be adjusted in order to reduce your CPH.

How to reduce Cost Per Hire

There are several different methods that can lead to reduction of CPH.

The effectiveness of these may vary depending on industry, occupation or even location of your company. Below is the list of the top 4 strategies that you can choose from to reduce the costs.

1. Digitisation and automation of your recruitment processes

Using free online tools, professional HR technology and AI to improve recruitment processes and reduce their costs is quickly becoming a new norm of your peers in the HR sector. Streaming and automating some of the activities can be achieved through the implementation of the right tools.

What’s more, simple solutions such as online face-to-face interviews will save you time, allowing your teams to interview higher volumes of candidates in a shorter timeframe, as well as saving you on travel expenses.

There are also numerous HR tools, recruitment and onboarding software available that can improve the efficiency of your processes leading to reduction of the overall costs in the long run.

2. Using existing employees and their networks

Offering your employees incentives in order to source and recommend possible candidates is an effective and commonly used technique that will reduce costs, time to hire and even turnover.

Take your referral scheme to the next level by actively encouraging your employees to share your job opportunities on their social media channels. Perhaps they don’t know anyone suitable for the role, but they might know someone who knows someone, and social media will help to increase the reach of your message.

Here are some of the examples of referral programs that work:

Salesforce LogoSalesforce organises Recruitment Happy Hours - employees are encouraged to invite people they’d like to refer to informal meetings organised at their offices.

Google logoGoogle internal TA team ask employees one simple question: “Who is the best software developer/programmer/java developer you know”. Asking that question automatically directs people’s thoughts towards the answers Google wants to hear.

fiverr logoFiverr uses technology to track sharing of their jobs on social media and adding elements of gamification to the process. The company offers points for sharing jobs, referring friends and other activities focused around that. Based on the number of points collected, employees receive gifts on a quarterly and yearly basis.

Accenture logoAccenture’s referral program is focused around the idea of referring as doing a good deed towards your friend(s) who might get a new job that they want. To magnify the effect of this “emotional reward”, Accenture encourage employees to donate part of their referral bonus to a charity and matches that amount.

3. Build a talent pool you can tap into in the future 

Often candidates who are hard-to-find, are also unwilling to leave their current job, but this may change one day.

According to LinkedIn Global Talent Trends report, 75% of the people you want to hire aren’t looking – they are passive candidates. The key here is to grab their attention and sustain it in order to build a pool of passive candidates. You could think of this process as a funnel: you need to get candidates into the funnel, nurture them while they are in the middle of the funnel (in your talent pool) and once they show any signs of becoming an “active” candidate, you need to act fast, but smart.

Talent Pooling

4. Consider a Recruiting Process Outsourcing (RPO) or other outsourcing model 

There are several different outsourcing models available and some of them can be adjusted or built from scratch to fit unusual and unique hiring requirements. This means that you can support or supplement your TA or HR team when you need it and in the way you need it.

In many cases, this ultimately leads to cost reduction as a good RPO will bring benefits such as: experienced recruiters, administrative support, applicant tracking, all sourcing tools you may require for a discounted rate, existing network, live reporting and no requirement for an extra office space.

Here is a practical example of how RPO can drive down cost of hire and improve the talent acquisition process:


Reducing Talent Acquisition costs - additional considerations

There’s a few other techniques worth considering that can have a positive impact on the overall costs of talent acquisition such as:

  • Reducing time-to-fill

  • Increase interview-to-offer ratio

  • Improving retention rate

Understanding your CPH is only one of the elements of a bigger TA cost reduction strategy. That being said, having a good understanding of your company’s CPH will allow you to make informed decisions on matters such as whether or not you should increase the size of your in-house hiring teams, upskill your current workforce or if you should consider an RPO solution.

If you’d like to discuss a possibility of outsourcing some or parts of your recruitment process for the purpose of lowering CPH, please get in touch with us and one of our experts will contact you directly to schedule an informal chat.

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