---
title: Calculating Cost To Hire To Optimize Your Recruiting Strategy
description: Understanding the cost to hire a new employee is critical in creating and managing a recruiting budget; however, it is also vital as a benchmark for measuring the success of different recruiting strategies and channels.
image: https://blog.sparksgroupinc.com/hubfs/cost%20to%20hire.png
---

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# Calculating Cost To Hire To Optimize Your Recruiting Strategy

![Calculating Cost To Hire To Optimize Your Recruiting Strategy](https://blog.sparksgroupinc.com/hs-fs/hubfs/cost%20to%20hire.png?width=1995&name=cost%20to%20hire.png)

To assess the effectiveness of an organization, it is important to track key performance metrics over time to understand progress, strengths, and weaknesses. In recruiting, these metrics include employee turnover and retention, application and acceptance, and [time to hire](https://sparksgroupinc.com/time-to-hire/). Another key metric organizations are keeping a closer eye on is cost to hire.

[![Try Our Cost To Hire Calculator And Get A Free Report](https://no-cache.hubspot.com/cta/default/3112753/a1a312b6-7abc-4883-aa2f-9f7ceeb7b06c.png)](https://cta-redirect.hubspot.com/cta/redirect/3112753/a1a312b6-7abc-4883-aa2f-9f7ceeb7b06c)

Understanding how much it costs to hire a new employee is critical in creating and managing a recruiting budget; however, it is also vital as a benchmark for measuring the success of different recruiting strategies and channels.

### Calculating Cost To Hire: Recruiting Externally Vs. Internally

While several formulas exist to help estimate the cost to hire a new employee, the most generally accepted was created by the Society for Human Resource Managers (SHRM). The SHRM formula is:

##### (Internal Recruiting Costs + External Recruiting Costs) / Total Number Of Hires

#### Internal Cost To Hire

Internal recruiting costs include the salaries of the recruiting team and the hourly amounts paid to a hiring manager or other interviewer, as well as a portion of the fixed costs – physical infrastructure – of the business. Any employee referral bonuses are considered internal recruiting costs as well.

**Learn More: [4 Employee Incentive Programs That Improve Productivity](https://blog.sparksgroupinc.com/client/employee-incentive-programs-that-improve-productivity)**

#### External Cost To Hire

The costs of [recruiting externally](https://blog.sparksgroupinc.com/client/utilizing-hr-staffing-companies-the-benefits-of-recruiting-externally-vs-internally) include advertising, technology (such as applicant tracking systems), recruiting events, candidate travel expenses, and [staffing and recruiting services](https://sparksgroupinc.com/staffing-recruiting-services/).

To [build a recruitment strategy plan](https://blog.sparksgroupinc.com/client/how-to-build-a-recruitment-strategy-plan), an organization must first establish a benchmark and measure the cost to hire over time to gain an accurate understanding of the costs associated with hiring new employees. Recalculating and reviewing the cost to hire on a regular basis is critical to help drive new organizational recruiting tactics, reduce waste and inefficiencies, improve time to hire, and create a better candidate experience.

#### Optimizing Cost To Hire

While the SHRM cost to hire formula is comprehensive and structured to include hard costs associated with hiring a new employee, it does not account for the soft costs. These soft costs can be difficult to quantify and can include the time it takes to search for and onboard qualified candidates, the time it takes for a new employee to become acclimated, and even the costs associated with a bad hire.

#### [![Click me](https://no-cache.hubspot.com/cta/default/3112753/1c36df7f-7d27-4aa1-950a-e81d01a367d7.png)](https://cta-redirect.hubspot.com/cta/redirect/3112753/1c36df7f-7d27-4aa1-950a-e81d01a367d7)

### Strategies To Help Optimize Cost To Hire:

#### 1. Automating Processes

While an applicant tracking or recruitment software solution may require an initial investment, it can pay for itself over time by eliminating inefficiencies, improving recruiter productivity, improving time to hire, and helping to steer efforts toward the highest-quality candidates.

#### 2. Create an Employee Referral Program

Offering a significant bonus to current employees for successful referrals is a strategy that can, not only help to improve the cost to hire employees but can also contribute to [employee retention](https://blog.sparksgroupinc.com/client/how-to-retain-top-talent-5-employee-retention-strategies) and engagement. One study found that 46 percent of referred employees stay at their new jobs for over a year, compared to 33 percent of those hired through [job boards](https://sparksgroupinc.com/job-boards/).

#### 3. Partner With A Staffing Agency

Partnering with a [staffing agency](https://sparksgroupinc.com/staffing-agency/) can actually reduce the cost to hire a new employee. While a staffing agency will charge a fee for helping an organization to fill an open position, that fee may very well be less than the cost to fill a position using only internal resources.

In addition to streamlining recruiting processes, a staffing agency saves businesses on soft costs during the hiring process by bringing in highly qualified leads and reducing time and effort need from internal teams, allowing them to allocate time on higher level projects.

Metrics like cost to hire provide an easily understood, standardized method to demonstrate the value of HR strategies to business leaders within an organization. Understanding, establishing, and monitoring cost to hire is a critical component of creating a recruiting budget and short and long-term recruiting strategies.

Sparks Group is a highly awarded staffing agency that provides temporary and full-time talent and business services to great companies in the United States. We act as a strategic hiring partner to reduce cost to hire while providing highly qualified candidates to drive business success.

**[Connect with our staffing and recruiting experts](https://sparksgroupinc.com/find-talent/connect-with-a-staffing-and-recruiting-expert/) to learn how our services can reduce your cost to hire and save your company resources.**

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---

Sources:

1\. https://www.shrm.org/ResourcesAndTools/business-solutions/Documents/shrm\_ansi\_cph\_standard.pdf

2\. https://theundercoverrecruiter.com/employee-referral-program/

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