Hiring the right talent is critical for any business. But when it comes to measuring hiring success, should companies focus more on cost-per-hire (CPH) or quality-of-hire (QoH)?
On one hand, reducing hiring costs is essential to maintain budgets. On the other, hiring top-quality employees leads to higher productivity, better retention, and long-term success. Striking the right balance between these two metrics is where many businesses struggle.
In this blog, we’ll break down:
- The definitions and importance of cost-per-hire and quality-of-hire
- How they impact business success
- Key strategies to balance both
- Best practices for optimizing your hiring process
By the end, you’ll have a clear strategy to maximize hiring efficiency while ensuring high-quality recruits—without overspending.
What is Cost-Per-Hire (CPH)?
Cost-per-hire is the total amount a company spends to fill a job opening. It includes all expenses related to recruiting, such as:
- Job advertisements (LinkedIn, Indeed, etc.)
- Recruiter salaries and agency fees
- Background checks
- Interview process costs (candidate travel, software, etc.)
- Onboarding and training expenses
Example for Cost-Per-Hire
if your company spends $100,000 on recruitment and hires 50 employees, your cost-per-hire would be $2,000 per new hire.
Why Cost-Per-Hire Matters
- Budget Control – High hiring costs can drain company resources.
- Hiring Efficiency – Helps companies streamline recruitment.
- Scalability – A lower cost-per-hire enables companies to scale without overspending.
Challenges with Reducing Cost-Per-Hire
While cutting costs is crucial, reducing cost-per-hire too much can lead to rushed or poor hiring decisions. A low-cost hiring approach might result in unqualified candidates, higher turnover, and increased replacement costs in the long run.
What is Quality of Hire (QoH)?
Quality-of-hire measures how well a new employee performs and fits within the company. It focuses on the long-term value that an employee brings.
Metrics Used to Measure Quality-of-Hire
- Performance Reviews – Evaluates employee productivity.
- Retention Rates – High retention suggests good hiring decisions.
- Hiring Manager Satisfaction – Feedback from managers about new hires.
- Time to Productivity – How quickly an employee reaches full productivity.
Example for Quality-of-Hire
if a new hire scores 8/10 in performance, stays for 3+ years, and the hiring manager rates them 9/10, the average QoH would be 8.5/10.
Why Quality-of-Hire Matters
- Long-Term Success – High-quality hires improve business outcomes.
- Lower Turnover Costs – Retaining employees reduces hiring expenses.
- Better Team Performance – Strong hires enhance overall productivity.
Challenges in Measuring Quality-of-Hire
Unlike cost-per-hire, quality-of-hire is harder to quantify. Companies need robust tracking systems to assess employee success over time.
Cost-Per-Hire vs. Quality of Hire: Business Impact
Both metrics play a crucial role in hiring, but focusing too much on one can hurt the other.
| Metric | Pros | Cons |
| Cost-Per-Hire | Reduces hiring expenses, speeds up recruitment | Can lead to lower-quality hires |
| Quality of Hire | Improves employee performance and retention | Higher hiring costs and longer hiring processes |
Which Metric is More Important?
While cost-per-hire keeps expenses low, quality-of-hire ensures high-performing employees. In the long run, quality-of-hire is more important because poor hiring decisions lead to increased turnover, wasted resources, and reduced productivity.
A bad hire can cost a company up to 30% of their annual salary (according to the U.S. Department of Labor). This means focusing solely on cost-per-hire can be a costly mistake.
How to Balance Cost-Per-Hire and Quality of Hire
The key to hiring success is optimizing both metrics without sacrificing one for the other. Here’s how:
1. Track Both Metrics Together
Instead of focusing on cost-per-hire alone, track it alongside employee performance, retention, and hiring manager satisfaction. This helps identify areas where you can cut costs without reducing quality.
2. Improve Screening & Assessment
A strong screening process ensures that only the best candidates make it through. Use:
- Pre-employment assessments
- Structured interviews
- Behavioral testing
This reduces hiring risks while keeping costs under control.
3. Use AI & Automation in Hiring
AI-powered recruitment tools can reduce hiring costs while improving candidate quality. Tools like Hirium help companies automate resume screening, candidate matching, and interview scheduling.
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4. Invest in Employer Branding
A strong employer brand attracts top talent organically, reducing the need for expensive recruitment efforts. Optimize:
- Company culture
- Employee testimonials
- Social media presence
5. Improve Employee Retention
Retention directly impacts hiring costs. The longer employees stay, the less frequently you need to hire. Offer:
- Competitive salaries
- Career development opportunities
- Work-life balance initiatives
By focusing on employee satisfaction, you can increase quality-of-hire while reducing long-term hiring costs.
Final Verdict: Cost-Per-Hire or Quality-of-Hire?
While both metrics are important, quality-of-hire should be the priority. A low-cost hire who underperforms or leaves within a year is far more expensive in the long run.
📌 Key Takeaway: Instead of choosing one over the other, companies should optimize both by improving hiring efficiency and investing in better recruitment tools.
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FAQs
1. What is a good cost-per-hire?
The average cost-per-hire is around $4,700 (according to SHRM). However, this varies based on industry and company size.
2. How can companies reduce cost-per-hire?
- Use AI-driven recruitment tools
- Optimize job postings
- Improve referral programs
3. What is a good quality-of-hire score?
A quality-of-hire score above 7/10 is generally considered good. Scores below this indicate room for improvement in hiring practices.
4. Can reducing cost-per-hire improve quality-of-hire?
Yes, if done correctly. By streamlining hiring processes and leveraging technology, companies can reduce costs while attracting top talent.
5. How can I track quality-of-hire over time?
Use performance reviews, retention rates, and hiring manager feedback to monitor new hire success.