How to Calculate Your True Cost Per Hire
Get a better grasp on this important, but elusive metric.
When you think about your cost per hire, what number comes to mind? In conversations with hundreds of hiring professionals in the janitorial and security industries, we hear vast discrepancies in what they think is their cost per hire. We’ve heard everything from $20 to $5,000 per hire. In fact, according to the Society for Human Resource Management (SHRM), the average cost per hire across all industries is $4,129. The number varies so greatly because there are so many factors people often forget, resulting in companies calculating cost per hire in different ways.
As strategic partners with end-to-end solutions specific to the janitorial and security industries, Kwantek and TEAM Software know how important issues like retention and turnover are to your business. We hear it every day from our customers, prospects and industry partners. That’s why we’ve partnered in this five-part retention and turnover blog series to help you focus on the metrics and data that will improve your business.
Before you continue reading, take a moment to put a real, monetary figure to the following question:
What is your average cost per hire?
The key to calculating your true cost per hire is to assume no costs are fixed. You must think of all the costs — both internal and external — associated with your hiring process including sourcing, recruiting and staffing. The best way to do this is to ask yourself the following question:
What costs would you be able to eliminate if you didn’t have to hire anyone for an entire year?
Would you need to pay for any of the following internal and external costs?
- Recruitment advertising
- Background checks and other pre-screening tests
- Training teams and/or software
- New uniforms
- Applicant tracking software
- Referral programs
Now, take a step beyond these tangible products and services. What else could you eliminate if you didn’t have to hire anyone? The expenses associated with recruiters, training and development, résumé review and interviewing, site managers and recruiting events can add up quickly. There would probably be positions you could merge if you don’t constantly have to hire, too.
Add up the costs of all these salaries, software and hiring-related services — your external and internal hiring costs. Find out how much you’ve spent on them over the last year. Now, divide that number by the total number of hires you’ve made over the last year.
That is your true cost per hire.
Is this figure more or less than the number you originally calculated in your head? The cost per hire metric is one of the more elusive metrics in the janitorial and security industries because it’s not a fixed line item on your balance sheet. This makes it easy to overlook and underestimate.
In high-turnover industries, like the commercial cleaning and contract security industries, companies spend thousands of dollars each month on salaries, software and other services to ensure the hiring machine keeps rolling. If you want to truly make that hiring machine efficient, one of the baseline metrics you must understand is your true cost per hire. Knowing your cost per hire can help you assess what’s working in your recruiting and retention strategy and what factors could help lower your cost per hire going forward. It also offers a baseline to compare to in the future.
Once you have this number, you can pair this with your profitability at the site level to give you a more complete understanding of how your sites are performing. This also factors into how you incentivize your site managers, which we discuss more in our next blog.