How to Improve Cost of Hire

High-performing firms always looks for ways to improve cost of hire. They do this by using technology and smart strategies to maintain this hiring metric.

Here are 3 ways to improve cost of hire.

1. Leverage Technology & Automation

Automation can dramatically reduce the manual effort (and cost) per hire.

Recruiting software and AI handle tasks that would otherwise require recruiter hours or outside vendors. Chatbot tools on career sites can answer candidate questions and pre-qualify applicants 24/7, saving staff time.

Microsoft and Google have invested in internal tools to track applicants and even predict which candidates might be successful. Google’s analytics teams build algorithms forecasting candidate job performance. This can refine who to advance – indirectly saving cost by focusing recruiter time on the best prospects.

Amazon uses automated online assessments for many roles (coding tests for developers, situational judgment tests for warehouse applicants). This scalability means fewer interviewer hours per candidate screened. Automation reduces labor costs in hiring, improving the cost per hire metric.

The costliest parts of recruiting are often human-time and third-party fees. By minimizing reliance on external agencies through in-house hiring teams.

Most major organizations have successfully built in-house corporate recruitment teams that reduce the overall cost per hire.

2. Improve Funnel Conversion

Another subtle way to reduce cost per hire is to improve your funnel efficiency. If fewer candidates slip through or get wasted at each step, you spend less per successful hire.

For example, improving the interview-to-offer ratio (selectivity) means you don’t burn interviewer time on too many candidates per hire. For some companies, this will mean they are expending too many resources. Training recruiters to better pre-screen or using assessments can yield a tighter funnel.

Similarly, improving the offer acceptance rate means offers result in hires more often. This will reduce repeating the process and lower the cumulative cost.

Many of these companies keep metrics like resumes per interview, interviews per offer, offers accepted, etc., to fine-tune their funnel.

Google cut its average interviews per hire significantly after data showed diminishing returns beyond 4 interviews. They call it the “Rule of Four”. This approach saves thousands of interviewer hours (which is a cost, albeit an opportunity cost) and speeding time-to-fill.

Meta monitors “cost per hire by channel” to ensure ongoing value. For example, a coding contest event that cost $50k resulted in quality hires to justify that spend versus other methods.

Optimize Advertising Spend & Employer Brand

Cost per hire can spike if you rely on expensive job ads or recruiters.

Apple and Tesla both benefit from a strong employer brand that organically attracts candidates. For example, Apple’s brand prestige and Tesla’s mission attracted nearly 500,000 applicants for about 2,500 roles one year!

Such high interest allows them to spend less on outreach. Why pay for job board postings when top talent is already eager to apply?

Investing in your employer brand (culture, publicity, “best workplace” awards, etc.) can reduce paid sourcing costs long-term by keeping applicant flow high. Additionally, companies analyze which job boards or channels give the best return.

For example, a startup might discover that a niche tech job board yields hires with half the resumes compared to a broad site like Indeed.

The Forbes example for founders demonstrates this: if one source gave 50 resumes per hire vs. another’s 2000 resumes per hire, the startup should drop the inefficient channel to save enormous time and cost.

Data-driven source tracking – something all these big companies do via their ATS – guides them to allocate recruiting budget to the most effective channels (be it LinkedIn, campus recruiting, referrals, agencies, etc.), thereby optimizing cost per hire.

3. Use Low-Cost, High-Yield Channels

Employee referrals are widely regarded as the most cost-effective hiring source. They often require only a referral bonus or none at all, and they produce strong hires quickly.

Surveys show 51% of recruiters say recruiting via referral is cheaper than other methods. And as noted, referrals hugely boost hiring efficiency – only a tiny fraction of applicants are referrals (6%) but they yield 37% of hires, representing great bang-for-buck.

Google, Meta and Microsoft all heavily encourage employee referrals to fill openings; they often pay bonuses (the average referral bonus in tech is about $2,400) – a small sum compared to agency fees or protracted searches. The result is lower cost per hire and typically better outcomes.

Google in its earlier days famously said “referrals are the lifeblood of our recruiting.”

Amazon also leverages referrals across its vast employee base (from corporate staff to warehouse associates) to source candidates at minimal cost.

By hiring from existing employees’ networks, companies save on advertising and screening costs and often get pre-vetted candidates who onboard faster.

In summary, improving the cost per hire will have a significant impact on your recruitment strategy and budget. It will also demonstrate how TA leaders partner with Finance teams successfully.