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The Cost Per Hire Truth

Updated: Apr 14, 2021

When I need to find a landscaper, it is usually reactive, and I do not want to spend a lot of money. I will go to Thumbtack and look up local reviews of companies and contact a few who will follow up and give me a quote, selecting one. I had to ‘recruit’ a landscaper, and my Cost-Per-Hire (CPH) of this professional was the price of a free app.

Now imagine for a moment there are very few landscapers in general, they don’t advertise, and your lawn is very different from your neighbors and requires special care – in fact, each neighbor’s lawn is different. What you would have to do is find a way to reach them (Sourcing), tell them why your lawn is great (Advertising/Marketing), better than your neighbors (Retention/Turnover) and spend more of your time doing it (Internal Recruiters). The costs associated with attracting the perfect landscaper in this case are much different, and what many companies today do not consider with their hiring.

Let us define what Cost-Per-Hire is first. It is a simple equation:

Total Recruiting Costs / Number of Hires in a Time Period – Including Backfills (Mainly Expressed as Monthly/Annually).

According to the American National Standards Institute (ANSI), Total Recruiting Costs Include:

  • Internal Recruiting/TA Staff Salaries + Employment Burden

  • Advertising/Marketing spend on Recruiting

  • Campus Recruiting/Job Fairs

  • Sourcing Tools (Indeed, LinkedIn, ZipRecruiter, Clearancejobs, Dice, Monster, etc)

  • ATS Software (iCIMs, Bullhorn, Siebel, Salesforce, ApplicantPro, etc)

  • Employee Referral Program Spend

  • 3rd Party Agency Fees

Example for Monthly Cost-Per-Hire:

Company A has 2 internal recruiters, one at $55k annually, and the other at $70k (~12,000/month total). They have LinkedIn Recruiter and Dice accounts for both (~2,000/month total), and they use Applicant Pro as their ATS (2 users ~$250/month total). They do one career fair for experienced hires per year ($500/monthly AVG), and paid out one referral bonus that month ($2000). They also paid a recruiting firm to make two hires last year ($40k in fees, avg of $3,333/month).

The Total Recruiting Costs per Month is $20,083.

Let’s say Company A hires 3 people per month, or 36-40 in a year – their Cost-Per-Hire is nearly $7,000.

According to SHRM in their FTE TA Report in 2019, the average CPH for companies is ~$4,800. So, Company A is spending far above average for each hire they make. SHRM also notes that 65% of companies spend dollars on ‘job boards’ for sourcing to provide their internal recruiters, yet 41% still use 3rd party agencies/recruiting firms.

How can companies reduce the costs WHILE getting their positions filled?

One way companies attempt to address this is utilizing contract recruiters, where overhead is reduced, and costs can be forecasted. Another is to train their recruiters (using Davis Laine) to be more productive with less tools and improve their skills – which will reduce turnover and churn.

What would probably be best in this scenario is considering Recruitment Process Outsourcing, or RPO. At Davis Laine, this is our Davis Laine Solutions offering. Here, a firm charges a flat monthly rate and becomes an extension of your internal/external efforts, at a much-reduced cost. Generally – the services firm will have experienced recruiters who need no upskill training, networks in place with qualified candidates, sourcing tools they make work magic, and carry the overhead costs of employment.

In the example above, when Company A spends $10,000 per month to partner with Davis Laine Solutions – their Cost-Per-Hire is $3,333, saving $3,100 PER MONTH, and they can hire more than just 3 people in a month.

This information can take some time to process, I know it did for me, but it is the truth.

Back to my landscaper story – the company I selected happened to offer a monthly service that provided seasonal seeding, weed-killing and ad-hoc beautification at a cost that annually was less than my repeated reactive trips to Thumbtack throughout the year, and the lawn looks great. Yours should too.

Society for Human Resources Management –SHRM IT FTE TA Report 11/11/2019

ANSI: Cost-Per-Hire Standard 2012, American National Standards Institute

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