Cost Per Hire – A Detailed Guide To Reduce It

In today’s knowledge economy, talent is the key driver of productivity and organizational growth. HR remains anxious about rising labour costs, managing a remote workforce, and skills shortages. The cost of labour is not abating, and offshoring, near-shoring, and business process re-engineering are no longer moving the productivity needle. The evolving external macroeconomic trends, technological advancements and intelligent automation, coupled with talent and capability shortages, have pressured organisations to follow sustainable cost structures with the right capabilities for effective growth.

The digital age has definitely unlocked new advantages – AI and automation are allowing companies to drastically reduce their internal and external costs. Now, organisations can be more productive with fewer staff and can expand their operations (through contingent workers, for example) without having to invest significant amounts of capital. Cost optimization is an ongoing agenda in the battle for profitability and sustenance. The key is to identify the cost-intensive talent processes and optimize them. One such cost-intensive HR process is talent acquisition or recruitment. Implementing a talent acquisition strategy that upholds both the quality and quantity of talent, while optimizing costs, requires strategic leadership and intense execution rigour on TA processes. A great way to track this is hiring metrics, one of which is Cost Per Hire.

Understanding Cost Per Hire

Recruitment metrics are a key indicator of recruitment efficiency. One such core metric, Cost Per Hire measures the average money spent on hiring a single candidate.

Cost of Hire = Total Internal costs + Total External Costs / Total number of Hires

Internal costs can be the cost of hiring a team, systems, resources; while external costs are usually job ads, social media promotions, and hiring consultants.

The average cost per hire (CPH) is around $4,700. However, the cost can vary widely depending on the experience of the hire – the CPH for executives is more than $28,000. And this cost is only increasing – the average cost per hire was $4,129 in 2019 but rose to $4,700 in 2023, which is a 14% increase. 

This presents an ongoing cost conundrum. Organizations have the opportunity to deliver technology arbitrage that can not only unleash the potential of their workforce but offer a new (and much needed) cost and return landscape. 

Tips to Reduce Cost Per Hire

Often, cost-reduction initiatives have a short-term focus solely on reducing people costs, leading to a proportional cut across various functions without considering the strategic needs. Instead of short-term cost cuts that can be detrimental, organisations can consider implementing cost transformation strategies that support long-term business and talent priorities. Here is how this can work for talent acquisition function: 

• Analyse Your Current Hiring Procedure: It is important to do a current state assessment of recruitment processes by defining and measuring the right recruitment metrics, along the entire recruitment funnel. Identify gaps and improvement areas.
• Streamline the Recruitment Process: Digitisation and automation of recruitment processes, (for example, using AI at the right touchpoints in the hiring process), is an effective way to optimize recruitment costs. Organizations that invest in right HR technology and hiring tools are able to minimize operational cost of hires in aspects like:  

• Writing clear and concise job descriptions to attract the best fit candidates, thereby ensure quality of hire with minimum inputs. 
• AI-enabled talent Sourcing helps tap into wider global talent pools including diversity sourcing channels.  
• Tech-forward Screening and Shortlisting can help arrive at the “right fit” as per various parameters. Eliminating misfits at the outset can help driving efficiency. 
• AI-led Employer Branding: Utilizing AI and Gen AI can help create the right and consistent messaging for the EVP. Also, candidate engagement can be enhanced through AI chatbots.
• Tech-based Candidate Engagement: Talent platforms with video interviews and personalized candidate interactions can help save a lot of time and manual effort (and therein, cost) for recruiters. At the same time they create a great candidate experience, tying into a strong employer brand and fostering passive hiring at lower cost.

The above measures will also help build a talent pipeline i.e. a pool of candidates for future job roles, thereby reducing the costs related to extended time-to-hire and external recruitment agencies fees.

• Implement Training and Development for Hiring Teams: To drive maximum adoption and utilization of new HR technology and tools it is important to  train recruiters and hiring managers on the new tech. Also, training on softer aspects like Diversity, Equity and Inclusion (DEI), Candidate Engagement, and Candidate Experience is equally important to build a strong employer brand. This will help attract the “right fit” talent, enhance the quality of hire, and add to recruitment effectiveness.
• Non-Traditional Recruitment Avenues: Turning to new talent pools is a great way to expand one’s hiring talent pool for future-readiness. Talent acquisition should unlock greater access to diverse and niched-skilled global talent and make talent available  to specific business needs. An on demand hiring or a blended workforce strategy can yield more skilled, niche talent at better commercials and better aligned with DEI outcomes too. “On demand” means talent which is available on a needs-basis; this is especially useful for high-growth or dynamic businesses which are in a state of flux. 
• Rethink Recruitment Strategies: It is time Talent acquisition professionals relook and reimagine their talent acquisition strategies and processes. Pose questions like, “Are we hiring from the right talent pools?”, “Do we have the right sourcing mix and the ideal workforce mix?”, “Are we driving candidate engagement?”, “Are we utilizing employee referrals and employee networks?”, and so on. Fundamentally rethinking the recruitment workflows will help optimize the Cost Per Hire. 

Measure and Optimize Recruitment Costs: Defining the business-centric recruitment metrics and cost outcomes and establishing processes to measure and track metrics will ensure a continued commitment to reducing Cost Per Hire and other hiring costs.

Solve Cube’s Resourceful Hiring Hacks

91% of recruiting pros say they’re focused on being agile to adapt to hiring needs.

In the future, agility will be a must-have for recruiting teams and recruiting teams will make a strong effort to ensure their organization is able to quickly adapt to changes in the labour market. 

Solvecube’s people solutions align with the agile talent model – an AI-powered platform that offers easy, quick and scalable access to an on demand, global, talent pool in different business-ready formats. 

• Integrated Talent Platform access to initiate AI-powered recruitment i.e. Sourcing, Screening, and Shortlisting of seasoned professionals. The Solvecube edge lies in offering access to an on demand workforce of 20,000+ and an aggregated talent pool of 580+ million. 
• Full service hiring of ‘hard to find’ mature, senior to C-Suite talent across domains and industries. 
• Experts on Demand to hire domain experts with flexible contracts as per the business needs. Hire fractional CXOs – CFOs, CTOs, CISOs, CHROs, CROs and such talent, Strategic Partners, Business Growth Partners, and much more talent in flexi-working models according to the changing business requirements.
• Recruiter on Demand: Add on demand hiring capability to your TA effort with access to 2200+ certified talent acquisition professionals and recruiters. 
• Employer of Record (EOR): Streamline global hiring and contracting across 100+ countries by hiring through Solvecube’s partner API. 

These are just some of the tech-enabled avenues to build a blueprint not limited to Talent Acquisition, but for the overarching people strategy. 

Early productivity gains from AI and quantum computing are enticing (mostly due to short-term cost savings), but it’s human-centric design — not tech implementations — that will unlock real productivity and innovation.

Leaders must note that reducing Cost to Hire and other hiring metrics cannot be achieved only through tech advancement. This must be complemented by human experience and expertise, including an ongoing commitment towards process excellence and process optimization. Solvecube’s leadership team brings decades of multifaceted expertise in helping HR leaders and business leaders don the hat of efficiency and effectiveness. The hiring technologies are complemented with the right human touchpoints to retain the “humane experience” in the hiring process. Leaders can benefit from this blend of tech and touch and realize maximum ROI from their recruitment strategy.