Whether you’re a recruiter yourself or an engineer who’s involved in hiring, you’ve probably heard of the following two recruiting-related metrics: time to hire and cost per hire. Indeed, these are THE two metrics that any self-respecting recruiting team will track. Time to hire is important because it lets you plan — if a given role has historically taken 3 months to fill, you’re going to act differently when you need to fill it again than if it takes 2 weeks. And, traditionally, cost per hire has been a planning tool as well — if you’re setting recruiting budgets for next year and have a headcount in mind, seeing what recruiting spent last year is super helpful.
But, with cost per hire (or CPH, as I’ll refer to it from now on in this post) in particular, there’s a problem. CPH is typically blended across ALL your hiring channels and is confined to recruiting spend alone. Computing one holistic CPH and confining it to just the recruiting team’s spend hides problems with your funnel and doesn’t help compare the quality of all your various candidate sources. And, most importantly, it completely overlooks arguably the most important thing of all — how much time your team is actually spending on hiring. Drilling down further, engineering time, specifically, despite being one of the most expensive resources, isn’t usually measured as part of the overall cost per hire. Rather, it’s generally written off as part of the cost of doing business. The irony, of course, is that a typical interview process puts the recruiter call at the very beginning of the process precisely to save eng time, but if we don’t measure eng time spent and quantify, then we can’t really save it.
For what it’s worth, the Twitterverse (my followers are something like 50/50 engineers and recruiters) seems to agree. Here are the results (and some associated comments) of a poll I conducted on this very issue:
Quick poll! Should "cost per hire" calculations include engineering time spent on interviewing candidates?— Aline Lerner (@alinelernerLLC) March 17, 2019
And yet, most of us don’t do it. Why? Is it because it doesn’t measure the things recruiters care about? Or is it because it’s hard? Or is it because we can’t change anything, so why bother? After all, engineers need to do interviews, both phone screens and onsites, and we already try to shield them as much as possible by having candidates chat with recruiters or do coding challenges first, so what else can you do?
If you’d like to skip straight to how to compute a better, more inclusive CPH, you can skip down to our handy spreadsheet. Otherwise read on!
I’ve worked as both an engineer and an in-house recruiter before founding interviewing.io, so I have the good fortune of having seen the limitations of measuring CPH, from both sides of the table. As such, in this post, I’ll throw out two ways that we can make the cost per hire calculation more useful — by including eng time and by breaking it out by candidate source — and try to quantify exactly why these improvements are impactful… while building better rapport between recruiting and eng (where, real talk, relationships can be somewhat strained). But first, let’s talk about how CPH is typically calculated.
As I called out above, the primary purpose of calculating cost per hire is to plan the recruiting department’s budget for the next cycle. With that in mind, below is the formula that you’ll find if you google how to calculate cost per hire (pulled from Workable):
To figure out your CPH, you add up all the external and internal costs incurred during a recruiting cycle and divide by the number of hires.
“External” refers to any money paid out to third parties. Examples include job boards, tools (e.g. sourcing, assessment, your ATS), agency fees, candidate travel and lodging, and recruiting events/career fairs.
“Internal” refers to any money you spend within your company: recruiting team salaries, as well as any employee referral bonuses paid out over the course of the last cycle.
Note that internal costs don’t include eng salaries, as engineering and recruiting teams typically draw from different budgets. Hiring stuff is the domain of the recruiting team, and they pay for it out of their pockets… and engineers pay for… engineering stuff.
What’s problematic is that, while being called “cost per hire” this metric actually tells us what recruiting spends rather than what’s actually being spent as a whole. While tracking recruiting spend makes sense for budget planning, this metric, because of its increasingly inaccurate name, often gets pulled into something it ironically wasn’t intended for: figuring out how much the company is actually spending to make hires.
As you saw above, not only is this the way we compute CPH inaccurate because it doesn’t factor in any time or resource expenditure outside the recruiting team (with eng being the biggest one). But, does engineering time really matter?
Yes, it matters a lot, for the following three reasons:
To establish that these things are (probably) true, let’s look at a typical eng hiring funnel.1 For the purposes of this exercise, we’ll start the funnel at the recruiter screen and assume that the costs of sourcing candidates are fixed.2
The green arrows are conversion rates between each step (e.g. 50% of people who get offers accept and get hired). The small gray text at the bottom of each box is how long that step takes for an engineer or recruiter (or both, in the case of an onsite). And the black number is how many times that needs to happen to ultimately make 1 hire, based on the green-arrow conversion rates.
So, with that in mind, to make one hire, let’s see how much time both eng and recruiting need to spend to make 1 hire and how much that time costs. Note that I’m assuming $100/hour is a decent approximation for recruiting comp and $150/hour is a decent approximation for eng comp.
Based on the funnel above, here’s the breakdown of time spent by both engineering and recruiting to make 1 hire. The parentheticals next to each line of time spent are based on how long that step takes times the number of times it needs to happen.
RECRUITING – 15 total hours
10 hours of recruiter screens (20 screens needed * 30 min per screen)
4 hours of onsites (4 onsites needed * 1 hour per onsite)
1 hour of offers (2 offer calls needed * 30 min per offer call)
To make 1 hire, it takes 15 recruiting hours or $1500.
ENGINEERING – 40 total hours
16 hours of phone screens (16 screens needed * 1 hour per screen)
24 hours of onsites (4 onsites needed * 6 hours per onsite)
For 1 hire, that’s a total of 40 eng hours, and on the face of it, it’s $6,000 of engineering time, but there is one more subtle multiplier on eng time that doesn’t apply to recruiting time that we need to factor in. Every time you interrupt an engineer from their primary job, which is solving problems with code, it takes time to refocus and get back into it. If you’re an engineer, you know this deep in your bones. And if you’re not, interruptions are very likely something you’ve heard your engineering friends decry… because they’re so painful and detrimental to continued productivity. Back when I was writing code on a regular basis, it would take me 15 minutes of staring at my IDE (or, if I’m honest, occasionally reading Hacker News or Reddit) to let my brain ease back into doing work after coming back from an interview. And it would take me 15 minutes before an interview to read a candidate’s resume and get in the mindset of whatever coding or design question I was going to ask. I expect my time windows are pretty typical, so it basically ends up being a half hour of ramping up and back down for every hour spent interviewing.
Therefore, with ramp-up and ramp-down time in mind, it’s more like $9,000 in eng hours.3
Ultimately, for one hire, we’re paying a total of $10,500, but eng incurs 6X the cost that recruiting does during the hiring process.
So, hopefully, I’ve convinced you that engineering time spent on hiring matters and that it’s the biggest cost you incur. But, if there’s nothing we can do to change it, and it’s just the cost of doing business, then why factor it in to CPH calculations? It turns out that eng time spent IS a lever you can pull, and its impact becomes clear when you think about cost per hire by candidate source.
To make that more concrete, let’s take a look at 2 examples. In both cases, we’ll pretend that one of our candidate sources has a different conversion rate than the overall rate at some step in the funnel. Then we’ll change up the conversion rate at one step in the funnel and try to guess that the financial implications of that are… and then actually calculate it. You might be surprised by the results.
As you can see in the funnel above, a decent TPS to onsite conversion rate is 25%. Let’s say one of your sources could double that to 50% (by doing more extensive top-of-funnel filtering, let’s say). What do you think this will do to cost per hire?
In this model, we’re spending a total of 10 recruiting hours (worth $1000) and 32 eng hours (worth $7200).4 Unlike in the first example, we’re now paying a total of $8200 to make a hire.
In this case, you’ve reduced your recruiting time spent by 30% and your eng time spent by 20%, ultimately saving $2300 per hire. If one of your sources can get you this kind of efficiency gain, you probably want to invest more resources into it. And though doubling conversion from tech screen to onsite sounds great and perhaps something you would have known already about your source, without computing the cost per hire for this channel, it’s not intuitively clear just how much money a funnel improvement can save you, end to end.
Another possibility is that one of your sources does pretty well when it comes to candidate quality all the way to offer, but for some reason, those candidates are twice as hard to close. In this scenario, you double both the eng and recruiting time expenditure and ultimately pay an extra $7500 per hire for this source (which you’ll likely want to deallocate resources from here on out).5
In either of the examples above, until you break out CPH by source and see exactly what each is costing you, it’s a lot harder to figure out how to optimize your spend.
The usual way to calculate cost per hire is definitely useful for setting recruiting budget, as we discussed above, but if you want to figure out how much your whole company is actually spending on hiring, you need to factor in the most expensive piece — engineering time.
To do this, we propose a different metric, one that’s based on time spent by your team rather than overall salaries and fixed costs. Let’s call it “cost per hire prime” or CPH prime.
CPH prime doesn’t factor in fixed costs like salaries or events, which you can still do using the formula above… but it is going to be instrumental in helping you get a handle on what your spend actually looks like and will help you compare different channels.
To make your life easier, we’ve created a handy spreadsheet for you to copy and then fill in your numbers, like so:
=>As you can see, once you fill the highlighted cells with your own conversion numbers (and optionally your hourly wages if yours differ much from our guesses), we’ll compute CPH prime for you.
And because we’re a business and want you to hire through us, we’ve included the average savings for companies hiring through our platform. We provide two big value-adds: we can pretty drastically improve your TPS to onsite conversion — about 65% of our candidates pass the tech screen at companies on average. From there, they get offers and accept them at the same rate as you’d see in your regular funnel.
So, why does being cognizant of eng time in your CPH calculations matter? I’ve already kind of beaten it into the ground that it’s the biggest cost sink. However, there’s another, more noble reason, to care about eng time. In my career, having sat on all different sides of the table, I’ve noticed one unfortunate, inalienable truth: engineering and recruiting teams are simply not aligned.
Engineers tend to harbor some resentment toward recruiters because recruiters are the arbiters of how eng spends their time when it comes to hiring without a set of clear metrics or goals that help protect that time.
Recruiters often feel some amount of resentment toward engineers who tend to be resistant to interruptions, toward putting in the time to provide meaningful feedback about candidates so that recruiting can get better, and toward changes in the process.
In our humble opinion, much of the resentment on both sides could be cured by incorporating recruiting and engineering costs together in a specific, actionable way that will reduce the misalignment we’re seeing. Recruiters tend to hold the cards when it comes to hiring practices, so we’d love to see them take the lead to reach across the aisle by proactively factoring in eng time spent during hiring and ultimately incorporating recruiting and eng costs together in one metric that matters. Once that’s in place, recruiting can use the data they gather to make better decisions about how to use eng time, and in the process, rebuild much of the rapport and love that’s lost between the two departments.
RECRUITING – 15 total hours or $1500
RECRUITING – 30 total hours or $3000
We’re assuming sourcing costs are fixed for purposes of simplicity and because this post is largely about the importance of eng time factored in to the funnel. Of course, if you have channels that reduce sourcing time significantly, you’ll want to weigh that when deciding its efficacy. ↩
Really though, the value of an hour of work for an engineer is intangible and much higher than an hourly wage. There ARE inefficiencies and overhead to having a larger staff, not every hour is effective, and most likely it’s your best people who are conducting interviews. The reality is that the money spent on salaries is probably only a fraction of the true cost to the company, particularly for engineers (as opposed to recruiters). ↩