1. HR Metrics 2: Staffing Metrics
This module introduces a variety of staffing metrics including Cost per Hire, Time to Fill, Internal and External Hiring Costs, and Fixed and Variable Hiring Costs.
Author: Scott Freehafer, Ph.D., SPHR, SHRM-SCP
Human Resource Management Metrics
© 2018 Scott Freehafer, Stu James, and Management by the Numbers, Inc.

2. Cost per Hire Definitions Insight
Companies bear costs for an employee long before the first paycheck is issued. Most of these are captured in the Cost to Hire, which includes all the costs associated with the recruiting and selection process of a new employee. But the costs of hiring the wrong person are far greater, so it pays to have a good recruiting and selection process.
Definitions
Cost per Hire = Internal Hiring Costs + External Hiring Costs
Average Cost per Hire = (Sum of Internal Costs + Sum of External Costs) / Total Employees Hired in Period
Insight
The Society of Human Resource Management (SHRM) found that the average cost per hire is just over $4,000, or approximately 10% of the average yearly salary in the US.
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3. Cost per Hire: Internal and External Costs
Sum of Internal Costs
Sum of External Costs
Cost
per
Hire
Developing the Job Description
Developing the Ad
Placing the Ads
Review Time
Interviewing Time
Selection Decision
Advertising Costs
Background Checks
Agency Fees
Drug Testing
Travel Expenses
Sign-on Bonuses
Let’s look at an example on the following page with associated values for each category.
Insight
While not a comprehensive list of internal and external costs, this list does capture many of the common tasks. Prior to starting the hiring process, a company should identify their own process and costs.
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4. Cost per Hire: Internal and External Costs
Definition
Cost per Hire = Internal Hiring Costs + External Hiring Costs
INTERNAL
Developing the Job Description = 2 hours at $50 per hour = $100
Developing the Ad(s) = 3 hours at $50 per hour = $150
Placing the Ads = 2 hours at $50 per hour = $100
Reviewing the Applications = 10 hours at $50 per hour = $500
Interviewing Time = 10 hours at $50 per hour = $500
Selection Decision = 5 hours at $50 per hour = $250
Negotiations & Communication = 3 hours at $50 per hour = $150
Total = $1,750
EXTERNAL
Advertising Costs = $1,500 per ad (2 ads) = $3,000
Background Checks = $250 per check (2) = $500
Drug Testing = $150 per test (2) = $300
Travel Expenses = $500 per applicant (2) = $2,000
Sign-on Bonus = $5,000 per hire = $5,000
Total = $10,800
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5. Cost per Hire: Internal and External Costs
Sum of Your Internal Costs
Sum of Your External Costs
$1, $10,800 = $12,550 total for one new hire!
The estimate of $12,550 for one new hire is only an estimate as actual times and costs almost always vary. However, if multiple candidates are being hired, a company would achieve efficiencies in the cost per hire since some expenses would not change regardless of how many employees were hired. For example, the time for developing the job description and ad, placing the ads, reviewing the applications, selecting the top candidates and the cost of advertising would be expenses where efficiencies could be achieved.
Let’s look at how the cost per hire is calculated when hiring multiple candidates.
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6. Cost per Hire: Fixed and Variable Costs
Sum of Internal Costs
Sum of External Costs
Number of Candidates Hired
If you are hiring several people for the same positions, some costs are Fixed Costs for that position since this is a one time cost and some costs are Variable Costs since the costs vary with the number of candidates/hires. Costs that don’t increase as more people are hired for the same position are Fixed Costs and costs which vary directly with the number of hires are Variable Costs. So, this equation could also be expressed as follows:
Cost
per
Hire
Sum of Your Fixed Costs
Sum of Variable Costs x Candidates interviewed and hired
Number of Candidates Hired
For example, if you want to bring in 10 candidates in order to hire for 5 positions, you would have the following cost per hire (see next slide):
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7. Cost per Hire: Fixed and Variable Costs
Sum of Your Variable Costs x Number of Candidates Interviewed and Offers Accepted
Cost
per
Hire
Sum of Your Fixed Costs
Fixed
Developing the Job Description = 2 hours at $50 per hour
Developing the Ads = 3 hours at $50 per hour
Placing the Ads = 2 hours at $50 per hour
Advertising Costs = $1,500 per ad (2 ads)
Reviewing the Applications = 10 hours at $50 per hour
Selection Decision = 5 hours at $50 per hour
$100
$150
$3,000
$500
$250
$4,100
Variable
Interviewing Time (10) = 10 hours at $50 per hour
Background Checks (10) = $250 per check
Drug Testing (10) = $150 per test
Travel Expenses (10) = $500 per applicant
Sign-on Bonuses (5) = $5,000 per candidate
Neg & Communication (5) = 3 hours at $50 per hour
$5,000
$2,500
$1,500
$25,000
$750
$39,750
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8. Cost per Hire: Fixed and Variable Costs
Definition
Cost
per
Hire
Sum of Your Fixed Costs
Sum of Your Variable Costs x Candidates interviewed and hired
Number of Candidates Hired
So, for our example on the previous page, we can calculate the cost per hire as follows:
$4,100 + $39,750
5 Candidates Hired
$43,850/5 = $8,770 per hire
Insight
So, if you are hiring multiple employees for the same position, then you can achieve some fixed cost efficiencies. In the examples above, we were able to lower the Cost per Hire by $3,780 per hire!
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9. Cost per Hire: Examples
Quintessential Outfitters is hiring 6-10 people per year for their telemarketing support team. Their estimated costs based on recent hires are as follows:
Developing the Job Description = 2 hours at $50 per hour
Developing the Ad(s) = 4 hours at $75 per hour
Placing the Ads = 2 hours at $50 per hour
Reviewing the Applications = 10 hours at $40 per hour
Interviewing Time = 2 hours at $50 per hour per on-site candidate
Selection Decision = 5 hours at $40 per hour
Negotiations & Communication = 3 hours at $50 per hour
Advertising Costs = $2,000
Background Checks = $200 per check
Drug Testing = $200 per test
Travel Expenses = $800 per on-site candidate
Sign-on Bonus = $1,500 per hire
Question 1: If they decide to fill one position and they plan to bring in 3 candidates for on-site visits and background and drug tests, what are their internal, external, total costs, and cost per hire?
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10. Cost per Hire: Examples
Answers (Question 1)
Internal Costs = Developing the Job Description, Developing the Ad(s), Placing the Ads, Reviewing the Applications, Interviewing Time, Selection Decision, Negotiation and Communication.
Internal Costs = $ * = $1,550
External Costs = Advertising Costs, Background Checks, Drug Testing, Travel Expenses, Sign-on Bonus.
External Costs = $2, * * * ,500 = $7,100
Total Costs = Internal + External Costs = $1, ,100 = $8, 650
Cost per Hire = $8,650
Question 2: If they decide to fill one position and they plan to bring in 3 candidates for on-site visits and background and drug tests, what are their fixed, variable, total costs, and cost per hire?
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11. Cost per Hire: Examples
Answers (Question 2)
Fixed Costs = Developing the Job Description, Developing the Ad(s), Placing the Ads, Advertising Costs, Reviewing the Applications, Selection Decision
Fixed Costs = $ , = $3,100
Variable Costs = Interviewing Time, Background Checks, Drug Testing, Travel Expenses, Negotiation and Communication, Sign-on Bonus.
Variable Costs = 3* * * * ,500 = $5,550
Total Costs = Fixed + Variable Costs = $3, ,550 = $8, 650
(Note that total costs should be the same – good check on your work!)
Cost per Hire = $8,650
Question 3: If instead, they decide to hire four people at a time to save on recruiting and training costs throughout the year, and they bring in 6 candidates for on-site visits and background and drug tests, what are their total costs, cost per hire, and savings per hire?
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12. Cost per Hire: Examples
Answers (Question 3)
Fixed Costs = Developing the Job Description, Developing the Ad(s), Placing the Ads, Advertising Costs, Reviewing the Applications, Selection Decision
Fixed Costs = $ , = $3,100 (no change)
Variable Costs = Interviewing Time, Background Checks, Drug Testing, Travel Expenses, Negotiation and Communication, Sign-on Bonus.
Variable Costs = 6* * * * * *1500 = $14,400
Total Costs = Fixed + Variable Costs = $3, ,400 = $17,500
Cost per Hire = $17,500 / 4 = $4,375
Savings per Hire = $8,650 – 4,375 = $4,275
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13. Time to Fill
Time to Fill
Time to Fill is an important consideration. In a perfect world, employees would give appropriate notice when they are leaving an organization so there would be time to hire or promote a person into the soon-to-be-vacated position, but this does not always happen!
The old saying, “Time is money” applies here! The longer it takes to fill an opening, the higher the cost to the organization. While a likely obvious cost is overtime, there are other less obvious “costs” such as lack of production, quality issues, morale issues, satisfaction and engagement issues, and possibly increased turnover to name a few.
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14. Time to Fill
Time to Fill
Once we know that we need to add a person to our organization, we need to think how long each of the following will take:
Developing the Job Description, Placing the Ads, Reviewing the Applications, Inviting/Scheduling the Applicants for an Interview (Phone or Live), the Interviewing Time, Background Checks, Drug Tests, the Selection Decision, Negotiation with the Selected Candidate
Once we select the candidate and the candidate agrees to join our organization, we also need to consider how long the candidate will need to give notice to his/her organization, whether the candidate wants to take off any time before starting with the new organization, and how long the orientation and training period will take before the person is ready to work.
Time to Fill will vary by job and organization. The more specialized the job, the more time it will probably take.
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15. Time to Fill Insight Consider the following example:
Developing the Job Description = 2 Days
Developing the Ads = 2 Days
Placing the Ads = 1 Day
Receiving/Reviewing the Applications = 10 Days
Inviting/Scheduling Interviews = 3 Days
Interviewing Time = 3 Days
Background Checks / Drug Tests = 3 Days
Selection Decision = 1 Day
Negotiation with Selected Candidate(s) = 5 Days
Reasonable Notice / Relocation = 21 Days
Orientation and Training = 7 Days
Total = 58 Days
Insight
Time to Fill could easily be 2 months!! Many organizations are overly optimistic about Time to Fill and don’t take into consideration the sequential nature of the process. It is difficult to speed it up while maintaining quality.
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16. Time to Fill: Examples
Time to Fill: Examples
Quintessential Outfitters (QO) is hiring for their telemarketing support team. Estimates for the length of each part of the process are as follows:
Developing the Job Description = Already have (0)
Developing the Ads = 1 Days
Placing the Ads = 1 Day
Receiving/Reviewing the Applications = 5 Days
Inviting/Scheduling Interviews = 2 Days
Interviewing Time = 3 Days
Background Checks / Drug Tests = 3 Days
Selection Decision = 1 Day
Negotiation with Selected Candidate(s) = 3 Days
Reasonable Notice / Relocation = 21 Days
Orientation and Training = 14 Days
Question 4: If QO starts the process immediately and they believe that they can receive applications and schedule interviews concurrently, how many days will it be before the new member of the support team is in place?
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17. Time to Fill: Examples Answer (Question 4)
Total Time = Total all the days in the process except for inviting / scheduling the interviews as that would be done concurrently with receiving / reviewing the applications.
Total Time = = 52 Days
Question 5: If, 7 days after giving notice, the new hire gets a counter offer from their current employer and decides not to take the position, what would be the new estimate of the total time. Assume that the second choice candidate from the interview process was now offered the position?
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18. Time to Fill: Examples Answer (Question 5)
Total Time including the 2nd hire = To calculate this, you will need to add up everything through 7 days into the notice / relocation stage, and then go back to the negotiation stage for the 2nd hire and add up the time from that point on.
Time (1st Hire) = = 24 Days
Time (2nd Hire) = = 38 Days
Total Time = Days = 62 Days
Question 6: In order to cover telemarketing support during the hiring process, QO would need to pay current staff overtime ($30/hr rather than $20/hr). What would be the additional cost of the hiring process only due to the time to fill, presuming 8 hr shifts?
Answer (Question 6)
Daily Cost for Overtime = ($30 – 20) * 8 = $80 per day
Total Cost Due to Overtime = $80 per day * 62 Days = $4,960
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19. Further Reference For Further Reference:
MBTN Modules: HR Metrics 1, 3-6
SHRM’s Cost per Hire article (requires SHRM membership)
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