“Cost per hire” refers, of course, to the cost of hiring new employees. You might not think hiring new team members is an expensive process, but it can be. Some of the associated costs are obvious, while others aren’t quite so clear. 

Your organization is smart to consider and calculate the average cost of hiring a person at the outset. It can affect your decisions about where and how much to invest in recruiting efforts, and it gives you an estimation of what it will cost to fill key positions.

How to calculate cost per hire

According to a recent survey conducted by the Society for Human Resource Management (SHRM), the average cost per hire is just over $4,000. 

Of course, various factors can skew that number, such as your hiring volume. The more people you hire, the lower your cost per hire will be. You can spread your fixed hiring costs over a larger number of people. 

Also, upper-level or niche positions can take more time to fill, so the accrued costs of that extended process may result in a higher cost per hire.

Depending on your company size and the positions you’re looking to fill, a good cost-per-hire range is somewhere between $3,000 and $5,000.

Here’s how to calculate the standard cost-per-hire:

Cost Per Hire= (Internal Recruiting Costs+External Recruiting Costs)Number of Hires

In other words, if you take the sum of your internal and external recruiting costs and divide that number by the number of hires you make in a year (for example), you’ll get your annual cost per hire.

Of course, you can also look at the numbers over the course of several years to determine your average and see whether that number is going up or down.

Internal Vs. External recruiting costs

Internal costs

Internal costs are organizational costs and internal expenses related to recruitment and staffing activities. These include:

• Cost of recruiting/sourcing staff: Salary, performance bonuses, and benefits for your sourcing/recruitment staff
• Compliance costs: Expenses associated with monitoring and processing the legal documents, procedural documents, etc. needed for compliance 
• Non-labor office costs: Expenses associated with supporting the recruitment effort, including office equipment, rent, etc. 
• Learning and development: Expenses associated with training and onboarding new hires
• Secondary management costs: Any time your hiring manager spends away from their regular duties to conduct interviews and other hiring tasks is a drain on normal office productivity.

External costs

External costs are the expenses paid to external vendors or individuals in support of the recruiting process. These include:

• Background checks: Criminal and educational checks, references, credit checks, eligibility to work, immigration status, etc.
• Pre-screening expenses: Costs related to ascertaining whether the candidate meets organizational recruitment criteria (e.g., assessments, tests, automated interviews)
• Sourcing expenses: Purchase of information databases, professional association memberships, and other third-party tools (such as a presence at job fairs) that provide you with sources or candidates 
• Technological expenses: Costs associated with recruitment technology (applicant tracking systems, application processing systems, systems maintenance, etc.)
• Travel expenses: Flights, hotel costs, etc. for both candidates and recruiters where travel is required
• Marketing costs: Costs associated with things like social networks, SEO, website updates, and job board postings
• Referral expenses: Monetary incentive programs that encourage employee referrals
• Signing bonuses: A sum of money paid to an employee for joining the company

Replacing cost per hire

Calculating cost per hire is a key step in allocating a recruitment budget. It’s one of the many measures that can keep you from facing an unwelcome surprise when you’re going over your numbers at the end of every year. 

While the numerous recruitment procedures and associated costs may be daunting at first glance, if you think about these figures and do the math, you’ll realize that spending what’s necessary to put together a strong team is worth the investment:

• A job vacancy costs, on average, about $98 per day
• It takes an average of 39 days to fill a position in the United States (and even more for high-level, C-suite positions)

If a role vacancy costs your company $98 per day, and it takes an average of 39 days to fill that position, you lose $3,822 over the course of those 39 days. 

Some positions can take significantly more time to fill. So, although it may cost up to $4,000 to fill a position, you’ll easily replace that cost per hire if the employee stays with you for at least 39 days. These days, most employees stay with a company for around four years, and even longer if you’ve established a great company culture.

The pitfalls of cost per hire

With all this talk about cost per hire, you might be wondering what the cost for a bad hire is, especially if you spent $4,000 to make it happen. Unfortunately, the cost of a bad hire is $15,000 on average. For upper-level positions, it’s considerably higher. 

You can make the most of your recruitment budget by avoiding the following hiring pitfalls:

• Moving too fast – don’t be in such a hurry to fill a position that you take the first person that comes along
• Passing overactive candidates in favor of passive candidates
• Discarding broadly skilled candidates in favor of specific experience
• Not hiring for culture fit
• Skipping the pre-screening step
• Not checking references
• Hiring a less-qualified candidate just to save money

Going through all the necessary steps to ensure you make a good hire keeps your cost per hire expenses down.

Want to reduce your costs of hiring new employees?

Finding the right AI technology to keep hiring costs down is essential to building a workforce that stays with you for the long run.

At Leoforce, we recognize the need for your organizations to make data-backed hiring decisions and limit the costs of recruiting. Our AI recruiting platform, Leoforce, continues to get smarter over time.

Request a personal demo of Leoforce Quantum to optimize your hiring cost efficiency with data-driven AI.

The post What does It really cost to recruit and hire a new employee? appeared first on Leoforce.

You may have noticed a tendency for the media to designate certain events in our history as “Great” like the Great Resignation that began in 2021; the Great Recession spanning from 2007 to 2009, and the decade-long Great Depression that began in 1929.

A person’s first instinct may be to question why you would use such a positive word to describe such negative events but when viewed from a different perspective, you could find pros and cons for each of these “Great” incidents.

The Great Resignation empowered workers to find a better work-life balance. The Great Recession helped end the misallocation of investment capital.

Even the Great Depression brought us national retirement, unemployment insurance, disability benefits, minimum wages, maximum hours, mortgage protection, and the electrification of rural America.

So what can we expect from the next Great on the horizon?

The Great Consolidation of banks

The combining of bank institutions through mergers and acquisitions became widespread in the 80s as regulatory changes permitted banks to operate in multiple states.

This trend gained momentum throughout the early 2000s when technology-enabled banking institutions to provide services at lower costs.

Consolidations have become such a common practice that the average rate of branch closures was 99 per month in the 10 years prior to the pandemic; however, since March 2020 more than 4,000 branches have been closed, doubling the average rate to 201 closures per month.

Benefits for the industry

Mergers and acquisitions may bring glad tidings to bank workers by reducing the disparity in wages and making service conditions more uniform. Redundant roles and designations can be eliminated, which leads to career growth opportunities as well as financial savings for institutions.

Indeed, the governing boards of these institutions will find consolidations most advantageous as they result in reductions in operation costs, financial inclusion, and a broadening of the geographical reach of banking operations.

But these buyers should beware. Mergers can also leave larger banks more vulnerable to global economic crises, the absorption of bad loans, and poor governance in public sector banks, as well as staffer disappointment which can lead to employment issues.

Disappearing branches

While the benefits of consolidating are clear for banking institutions, the benefits and costs for the consumer are less so, especially as media headlines often associate consolidation with the closing of bank branches.

And with two-thirds of U.S. banking institutions vanishing in the last three years, an alarming rate by even industry standards, consumers may be right to be concerned.

Despite the increase in online or digital banking services, research shows that customers still value in-person interaction for a lot of their banking needs. There are still security concerns when performing certain transactions, such as opening accounts, resolving account issues, and transferring large sums in person rather than online.

Banking deserts

Intended to help correct the history of public and private redlining, the Community Reinvestment Act (CRA) of 1977 requires banks to assist the communities in which they operate. The focus is access to loans and financial services for households and businesses in low- to moderate-income neighborhoods.

As a result of the Great Consolidation, one-third of the banks closed between 2017 and 2022 were located in low-income and/or majority-minority neighborhoods where access to branches is crucial in ending inequities in access to financial services.

As the top 25 banks continue to absorb more and more of the assets that once belonged to small banks, they fail to increase the number of brick-and-mortar branches effectively creating banking deserts.

Although there are more online banking services than ever, the presence of physical branches where customers can interact directly with loan officers who know them and their neighborhoods is something technology has yet to find a substitute for.

An increased responsibility

These economic shifts may have weakened the business structure on which the CRA was built, but they do not alter banks’ obligations. Larger, less-local banks are still responsible for serving the credit needs of every community they operate in.

Changes in how the public interacts with their bank do not create exemptions to the law. They could, however, create new opportunities for growth in both banking and technology.

As we’ve learned from the “greats” of the past, necessity drives innovation, and we can’t know the perception another decade or two might afford us.

New technologies such as smart contract systems, biometric and multi-factor authentication, secure online customer onboarding, and application programming interfaces (API) have already emerged, allowing banks the capacity to accelerate automation and deliver more widespread services.

But the expansion of financial institutions and their obligations, combined with rapid advancement in technology, creates another hurdle for banking in the form of talent acquisition.

The tech savvy-banker

In the past, banking jobs have always been considered highly coveted roles for candidates looking to get into finance, but with the emergence of crypto and other decentralized peer-to-peer payment systems banks are left struggling to acquire talented, skilled, and competent employees.

Automatic teller machines (ATM), Internet banking services, electronic money transfers, and telephone banking have changed the skills necessary to be a bank employee forever.

Tech firms are redefining our society in business practices on a daily basis, which means in order to get the most out of their employees, banks will need to train and re-train them on a regular basis.

Most notably in sectors such as information technology, artificial intelligence, machine learning, mathematics, and software engineering.

And there is no shortage of tech startups and firms that are ready to scoop up the diminishing pool of skilled workers currently available.

New tech to find tech

The growing demand for tech-savvy workers means that banks aren’t simply competing with other banks. Recruiters across every industry are desperately searching for candidates with increasingly similar skills.

At Leoforce, we understand the need to identify a clear strategy for faster human resource acquisition and development.

That is one of the many reasons we developed Leoforce Quantum, to help financial institutions modernize their recruiting infrastructure to find the specific skills required to succeed in both analog and digital banking.

Leoforce saves the time it takes to search and rank candidates by providing recruiters with a prequalified and ranked list of diverse individuals that not only meet your skill needs but also blend well with your company culture.

Look to the future

We may not have a crystal ball that can divine how this great change will affect the landscape of banking, but we can continue to glean insights from the greats of the past.

There will almost certainly be layoffs as well as role changes and staff reshuffling, which will lead to opportunities for recruiters and workers alike.

We can also expect to see more pressure put on banking institutions and their reliance on technology to meet the needs of their ever-growing customer base.

As banking continues to evolve, industry players will need to keep an eye on the state, federal, and global regulators, preparing for new laws and regulations in emerging focus areas like climate, financial inclusion, and digital assets.

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