How to Calculate Recruitment Costs for 2020

Hiring Success Glossary

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What are recruiting costs?

In order to find no surprises throughout your recruitment and hiring process it's important to invest the time to accurately calculate and plan out your recruitment costs. Part of accurately assessing and forecasting recruitment costs is to take a look at how companies traditionally used to measure costs and hiring success and compare those calculations with new metrics that many companies are currently transitioning to. Understanding the differences and benefits between legacy and new metrics will allow you to be on the cutting edge of recruitment, helping you scale your business all while maximizing your recruiting ROI.

What is net hiring score?

One of the best metrics for measuring a company's overall hiring success is net hiring score (NHS). Simply put, NHS measures the fit between new hires and jobs.

How to use net hiring score to calculate your recruiting costs

  • Ask hiring managers the following question after new hire ramp-up time: On a scale of 0-10, how much of a fit is this new hire for the job?
  • Ask new hires the following question after ramp-up time: On a scale of 0-10, how much of a fit is this new job for you?
  • Gather all results and categorize into the percentage of those who answered 9-10 (Great fits) and subtract from it the percentage of those who answered 0-6 (Poor fits). Multiply this result by 100 to land on your NHS.

Your NHS will range from -100 to +100. The higher the score, the better. A benchmark of ramp-up time for knowledge workers can be set at 90 days post-start date, while a low-skill job can be set at 15 days post-start date.

Net hiring score is closely tied to a company's bottom line as time and time again we see that poor fit employees cost companies a significant amount of money in lost productivity. If we assume that poor fits cost an organization ~2x their salary and strong fits generate 4x the value of their salary, is easy to see why net hiring score is an absolutely crucial metric to track.

Old Metric: Time to Hire

Time to hire: Time to hire/fill was what a majority of companies used to use to track hiring. The problem with time to hire is simple, it's too rudimentary. It incentivizes recruiting teams to hire as quickly as possible. This speed often leads to rushed, ill fitting hires.

New Metric: Hiring Velocity

Hiring velocity: Hiring velocity allows you to analyze data that is role specific, allowing you to adjust accordingly to optimize your recruitment process. Hiring velocity solves one of time to hires main problems. With HS you can plan ahead and allow the proper amount of time to fill specific roles with told talent, avoiding the scramble and rush associated with cost per hire madness.

Hiring velocity is quickly becoming the industry standard to replace time to hire. Hiring velocity measures one thing: The percentage of jobs filled on time. Hiring velocity is simply focused on what every executive is wondering, are we able to hire the right people when we need them?

Old Metric: Cost per Hire

Cost per hire: In the age of big data we should no longer settle for subpar data points. Cost per hire is also too simple to provide insights that you can rely on without a second thought. Cost per hire can’t tell you if you are investing enough resources in specialized talent or unicorns. Cost per hires also fails to take into account that the investment needed to fill different roles will vary depending on scarcity, seniority level, and countless other factors.

New Metric: Hiring Budget

Hiring budget: Hiring budget allows a company to take into account the cost of recruiting in relation to the value of the employee (salary). Hiring budget includes all recruiting costs both internal and external. With Hiring Budget, you can tailor your recruiting investment to the type of role for which you’re trying to hire.

Hiring Budget is the sum total of recruiting costs associated with hiring new candidates, as a percentage of the total salary of the new employees or new hire payroll. Hiring budget takes the insights on recruiting costs to a new level, allowing you to tailor your recruitment process for a higher ROI.

Utilizing new metrics to track recruiting costs in 2020

Accurately tracking your recruitment costs is a must in today's hyper competitive talent acquisition space. In order to not lose out to your competitors its essential to use the most up to date recruiting metrics so that you can revamp and optimize your processes. Make sure your ATS software supports analytics for the most up to date metrics. If you are interested in the ultimate guide to talent acquisition check out the Definitive Guide to Hiring Success!

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