Cost per application and cost per hire: your hiring efficiency metrics
April 25, 2023
Hiring the best talent means casting a wide net to find candidates with the perfect skills and an outlook that will help them thrive at your company—but is that recruiting agency you brought on delivering enough value to justify the fees? And is it worth it to keep posting job listings on LinkedIn, Indeed, and ZipRecruiter?
The ROI of hiring operations is always important, but never more so than in an economic climate like the one we’re facing today. Businesses across every size, stage, and industry are searching for ways to increase efficiency. That means talent ops leaders are facing hard choices about which tools and sourcing channels they can afford to keep investing in.
Cost per application and cost per hire are the metrics to use in assessing the value of various sourcing channels. In this post, we’ll walk you through calculating both metrics and interpreting the results you get. Arm yourself with this knowledge before your next meeting with execs, and you’ll have a better chance of defending what you do and protecting your recruiting budget.
What is cost per application (and how do I calculate it)?
Cost per application (CPA) measures the sum of the resources it takes to attract one job applicant—how much money did your team spend to get a single candidate to apply? To calculate this metric, start by finding the dollar cost of preparing and posting a new job listing. Then find the number of applicants so you can determine the CPA.
What do I need to calculate my cost per application?
Set yourself up for the CPA calculation by assessing the expenses that go into creating a job application. The more costs you track, the more accurate your CPA will be—but if you don’t have time for a deep dive, start with the biggest expenses (e.g. job boards) to get directional guidance on this metric. (If you’re using Gem’s Source Channel ROI Calculator, you can simply start by inputting expenses for each ATS source that's applicable to applications within the timeframe you’re working in. Gem takes whatever your ATS has as its sources—third-party boards, in-person events, agencies, prospecting, company marketing, referrals, and so on—and allows you to attribute dollar values to them. Non-ATS source costs—salaries and overhead, for example—aren’t included as part of our calculation.)
Your list of applicable costs will depend on how complex your job posting is, but it can include:
Time spent writing the job description
Tools used to edit/revise the job description (like Grammarly or Textio)
Job board fees
Time spent filtering out spam or unserious applicants
Overhead (office space, utilities, etc.)
After you make your list, you’ll need to translate each resource into dollars. For line items that involve an employee’s time, get rough estimates from each employee of how long the task takes. Then multiply the average time commitment (in hours) by the average hourly wage for the role that owns the step.
When adding line items like tool costs and overhead, you’ll only want to consider a percentage of the total expense. After all, your team does much more than post job descriptions, and those functions own a percentage of your overhead and tool costs as well.
Finally, you’ll need to know the number of job applications your team has received for each job listing. If you use a CRM like Gem, that data can be pulled from your ATS; hiring teams that don’t use a centralized CRM or ATS may need to browse their archived listings on the various job boards they use.
The cost per application formula
Cost per application = cost (in dollars) of posting a job listing / number of job applicants
Calculate your CPA by adding all the figures you gathered in the previous step. Then divide by the number of job applications your team received. You can do the calculation per job listing—which will take a while but return more granular data—or get an average CPA by grouping all listings together. (Gem’s ROI Calculator will give you the average CPA across your organization.)
If you choose to calculate CPA per role, make sure you consider whether the costs vary by job listing: Do you have to advertise more for technical positions? Do you spend more time weeding out spam applications for lower-entry jobs? These variables will affect your overall costs.
If you choose to calculate the average CPA across the organization, pick a period to run the calculation over—the past year is a good place to start. Add all the costs related to posting new jobs during that period, then divide your result by the sum total of applications you received.
What is cost per hire (and how do I calculate it)?
Your average cost per hire (CPH) tells you the dollar cost of filling a role at your company. This requires you to gather data on all the expenses that are part of the recruitment process. Then divide that by the total number of hires your team makes.
Your CPH will be higher than your CPA because you’ll be dividing your total costs by a much lower number. (You’ll ultimately have fewer hires than applicants.) You may also be factoring in more expenses. Don’t let that scare you away from doing the calculation, though. Knowing your CPH will help you defend your budget.
Even if your company isn’t adding new positions, you can use your knowledge of average turnover rates to estimate the number of people you’ll need to hire for backfills. Multiply this number by your CPH, and you have a minimum necessary budget for your team.
What do I need to calculate my cost per hire?
The costs that go into making a hire are often sorted into two categories: internal and external. Your internal recruiting costs cover your hiring team and its needs, such as:
Salaries of in-house talent acquisition employees
Hiring managers’ time spent working with your team
Compliance professionals’ time (legal or other specialized positions) spent working with your team
Administrative and overhead costs (rent, office equipment, hiring tech, etc.)
Learning and development or training for your talent ops team
Lost productivity while a role is open
Referral bonuses, signing bonuses, or relocation costs
Then, there are your external recruiting costs—money you spend with vendors to reduce the amount of work your team does in-house. They might include:
Recruiting agency fees
Memberships to professional databases
Job board posting fees
Website hosting and maintenance
Advertising and marketing fees
Employer branding and events (career fairs, campus recruitment, etc.)
Recruiter travel costs
Recruiting software (candidate relationship management tools, applicant tracking systems, etc.)
Candidate aptitude testing
Because it’s directly connected to your ATS, Gem's ROI Calculator focuses on the external recruiting costs above to help you optimize tool and vendor spend. Supplement your own calculations for internal recruiting cost if you need to conduct a more holistic expense review of the entire organization. Tracking down all of these costs can sometimes be time-consuming; if you’re working outside of Gem and can’t find an exact number for each expense, you’ll have to estimate. Make sure you note whether your final calculation is based on estimated data. Comparing a potentially skewed figure to a more accurate number (once you have one) may not give you much insight into whether you’re hiring more efficiently than before.
The cost per hire formula
Cost per hire = (internal recruiting expenses + external recruiting expenses over a period of time) / number of hires made during that period
Calculating CPH for each position would be very difficult, as you’d need to find percentages of multiple expenses (and there are a lot!). We recommend finding your overall CPH plus your CPH by department if you’d like to dig a little deeper. The latter helps you determine if your spending is consistent across departments or whether your push for efficiency should focus on your hiring processes for certain roles or teams.
Using CPA and CPH to make the most of your hiring budget
Both CPA and CPH can help you reduce and refine your spending. Compare the costs between different roles and departments to see where you’re spending the most in your hiring process, then ask whether the high spend is justified.
Some roles (especially executive positions and highly-specialized jobs) are likely to have a higher CPH because there’s a smaller candidate pool and you may need more hours from hiring managers and other employees to help evaluate candidates.
Significant cost discrepancies between roles at the same levels but on different teams and in different departments should give you pause. Look at where the difference in costs comes from to determine whether those steps or resources are bringing measurably better results or whether you can trim your budget by changing your hiring process.
You can also compare your CPA and CPH to industry standards to see whether your company is hiring more or less efficiently than competitors.
Finally, look at CPA and CPH to see how they correlate with other metrics. If you spend more per hire for a certain role or department, do those candidates have higher retention rates or quality ratings? Does cutting your per-application spend negatively affect candidate satisfaction or offer-acceptance rate? Cutting costs may be a priority, but you don’t want to toss out steps or tools that are essential to doing your job well. Lower-quality hires can be more expensive over the long term due to lost productivity and higher turnover rates.
Track metrics efficiently to improve your recruiting ROI
The biggest downside of tracking cost per application and cost per hire data is the time it takes. It’s easy to end up in a loop of emails as you try to gather all the financial data you need and add it to spreadsheets.
Gem makes it easy to find your CPA and CPH for each sourcing channel. Talent Compass automatically incorporates the source channels linked to your ATS plus the number of applicants and eventual hires from each. Our new Source Channel ROI Calculator allows you to add expense records (event, subscription, or per hire fees) for each source. You can then sort sources by overall cost as well as by cost per application and cost per hire.
Recruiting teams can use the Source Channel ROI calculator to track spending trends and determine which sourcing methods their company should keep investing in—and which can be cut to save money. These adjustments can help you decrease your CPA and CPH overall. That’s the kind of efficiency leaders are looking for from hiring teams. And it may be key to retaining your team’s headcount or getting buy-in the next time you request a budget for a must-have tool, sourcing channel, or employee.
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