Understanding cost per hire
Cost per hire is the total expense involved in hiring a new employee. It includes spending on job ads and postings, Recruiter salaries and onboarding. Determining cost per hire requires adding up obvious and hidden costs.
Understanding this metric helps you identify what you’re really spending to hire people. When you know that, you can work on ways to save money and make recruitment more efficient.
Definition of cost per hour
Cost per hire measures your expenses in bringing on new employees. While the exact number varies by company and role, most calculations include direct and indirect hiring expenses. Common factors in cost per hire include:
- Job board fees and recruitment advertising
- Recruiter salaries and internal hiring resources
- Interview and candidate travel expenses
- Background checks and pre-employment testing
- Onboarding and training materials
- Referral bonuses and hiring incentives
- Equipment and software for new hires
Importance of tracking cost per hire
Tracking cost per hire gives you a clearer picture of how efficiently you’re recruiting. Without this data, it’s difficult to know whether your hiring strategies are cost-effective or if resources are being wasted. When you consistently monitor the cost per hire, you can identify what’s working and what’s not, make adjustments and create a more efficient hiring process over time.
For example, tracking cost per hire might help you notice that one recruitment channel consistently delivers top talent at a lower cost. Another may produce minimal results despite high investment. That insight can guide you to reallocate the budget.
Monitoring cost per hire also helps align hiring efforts with overall business goals. A sudden increase in cost without improvements in candidate quality or time to hire could point to inefficiencies that need attention. If your cost per hire metric drops suddenly, it might indicate areas of opportunity to expand your hiring strategy.
Components of cost per hire
Cost per hire includes all the expenses a company incurs to bring a new employee on board. This metric offers a full picture of recruitment spending, helping organizations better understand the true cost of hiring.
These costs generally fall into two categories: internal costs, such as recruiter salaries and software tools, and external costs, like job board fees and agency payments. Identifying and tracking each element lets you calculate cost per hire accurately.
Internal recruitment costs
Internal recruiting costs include what your company spends on in-house hiring activities. These are often tied to recruitment staff, tools and time.
While some costs are direct and easy to track, such as software subscriptions, others are harder to quantify. For example, if you have human resources (HR) team members who work on recruiting in addition to other tasks, it can be difficult to tie an exact number of work hours to hiring.
Examples of internal recruiting costs include:
- Salaries and benefits for recruiters
- Time spent interviewing by hiring managers
- Subscriptions to internal recruiting or applicant tracking systems (ATS)
- Costs for training or upskilling internal teams
- Incentives or referral bonuses offered to current employees
- Overhead related to hosting interviews, such as meeting space or equipment
External recruiting costs
External recruiting costs are those paid to outside vendors, platforms or services that help you attract and assess candidates. These costs can vary widely depending on how competitive the job market is or how specialized the role may be.
Examples of external recruiting costs include:
- Job board fees
- Staffing agency services
- Hiring campaigns, such as social media or display ads
- Background check and pre-employment assessment services
- Employer branding services or sponsored content
- Travel or relocation reimbursement for candidates
Calculating cost per hire
To calculate cost per hire, add together all internal and external hiring expenses for a given period. Then, divide that total by the number of hires made during that period.
Estimating costs by department can help you streamline budgeting processes and discover opportunities for improving the hiring process. However, while it’s helpful to know the cost per hire, this metric shouldn’t remove focus from other key priorities, such as candidate quality and retention.
Gathering cost data
Accurate cost per hire calculations start with detailed data. You can use these steps to help capture the full picture of your recruitment spending:
- List internal costs, such as recruiter salaries, software subscriptions and time spent interviewing.
- Track external costs, like job board fees, agency payments or relocation stipends.
- Collect data by department to help analyze hiring trends across teams.
- Verify totals by cross-referencing data with accounting or finance records.
- Keep documentation consistent so cost tracking can become part of your standard hiring workflow.
Using the cost per hire formula
Once you’ve gathered total recruiting costs, you can calculate cost per hire with this formula:
Cost per hire = Total recruitment costs / Number of hires
To understand the formula, consider a hypothetical example. If a business spends $60,000 on hiring activities in one quarter and brings on 10 new employees during that time, it would calculate the cost of hire as follows:
Total recruitment costs ($60,000) / Number of hires (10)
In this situation, the cost per hire is $6,000.
Factors influencing cost per hire
Several variables influence how much it costs to hire a new employee. Understanding these factors can help you set realistic hiring budgets and make more strategic recruiting decisions.
Company size
The size of your organization plays a role in shaping hiring costs. Larger companies often benefit from economies of scale, meaning they can spread fixed recruiting costs, like recruitment software or employer branding, across a higher volume of hires. They may also have dedicated HR teams and streamlined processes that reduce costs per individual hire.
In contrast, small or midsize businesses may rely on less efficient systems or leaner recruiting teams, which can increase per-hire costs. They may also lack the brand recognition needed to attract candidates quickly, leading to additional investment in advertising or outreach efforts over time.
Industry and location
Recruiting expenses vary widely by industry. In-demand sectors such as healthcare, tech and professional services often face steeper competition for talent, which can increase costs.
Location matters, too. Companies located in larger cities typically have access to a larger talent pool, which may shorten time to hire and reduce associated costs. Businesses in rural or remote areas may need to invest more in sourcing, travel reimbursements or relocation incentives to attract candidates.
Job level and type
The complexity and seniority of a role can impact its hiring cost. Entry-level roles may require fewer interviews, less vetting and minimal negotiation, helping to keep costs relatively low.
When you’re hiring for executive or highly specialized positions, you may need to engage in a lengthier search, use external recruiters and host multiple stakeholder interviews. This can result in a higher cost.
Strategies to reduce cost per hire
If your cost per hire is higher than expected or rising over time, it may be a sign that your recruitment process needs streamlining. There are several ways to reduce hiring costs without sacrificing candidate quality. From tech tools to brand awareness, the following strategies can help you make smarter recruiting investments.
Leveraging employee referrals
Employee referrals are one of the most cost-effective hiring methods. Referrals often lead to faster hires and better cultural alignment, which can reduce turnover and onboarding time. Because these candidates come pre-vetted by trusted employees, they may require fewer rounds of interviews or assessments.
To maximize this strategy, consider launching an employee referral program with clear guidelines and incentives. Even when you offer a modest bonus for referrals, the overall cost is often lower than the cost of traditional sourcing methods. Encourage participation through internal communications, such as emails and posters.
Utilizing recruitment software
Recruitment software can help reduce the administrative workload of hiring and shorten the time it takes to fill positions. Tools like applicant tracking systems (ATS), resume screeners and interview scheduling platforms can automate repetitive tasks. This lets your team focus on strategic decision-making and reduces the labor costs involved.
By improving organization and pipeline visibility, recruitment software makes it easier to spot inefficiencies and reduce costs. Some platforms even provide built-in analytics to monitor costs across sourcing channels and campaigns.
Enhancing employer branding
A strong employer brand can help you attract high-quality candidates without relying heavily on paid advertising. When job seekers are already familiar with your company’s values, culture and work environment, they may be more likely to apply. This can save you money on outreach efforts.
Boost your employer brand by maintaining an engaging careers page, encouraging employee reviews on job sites and sharing behind-the-scenes content on social media. Highlighting your values and positive employee experiences can help candidates self-select, increasing the odds that applicants are a good fit.
Benchmarking cost per hire
Monitoring your cost to hire can help you understand trends in hiring expenses within your organization. If you benchmark this metric, it can potentially clarify how your organization performs compared to other businesses.
For example, if the average cost per hire in your sector is $5,000 and you’re only spending $2,500 per hire, either your process is substantially more efficient than average or you have room for opportunity in hiring. However, if the average is $5,000 and you’re spending $8,000, you may have some wasted expense and effort in your hiring process.
Industry benchmarks
Benchmarking from the Society for Human Resource Management indicates that the average cost to hire across all industries is around $4,700. This cross-industry average provides insight into your hiring costs, but it’s helpful to consider more specific figures.
Regular review and adjustment
As hiring needs, tools and market conditions shift, regularly reviewing and updating your cost per hire calculation helps you stay agile.
New sourcing channels, changes in recruiter workload or updated onboarding practices can impact cost. By tracking this metric over time, you can identify trends, spot inefficiencies and adjust your recruitment strategy accordingly.
Whether you’re scaling quickly or streamlining operations, reviewing this metric and the factors that influence it helps you keep costs aligned with your business goals.
Utilizing cost per hire insights
Cost per hire is more than a budgeting tool. It’s an insight that can help you improve your hiring strategy. When used well, this metric can highlight where your recruitment dollars make a positive impact and where they might be going to waste.
Improving recruitment efficiency
Tracking cost per hire helps you pinpoint which parts of the hiring process are driving up costs. For example, if certain departments consistently have higher costs, you might assess their sourcing methods or interview processes. You may discover that a particular job board rarely results in quality hires or that a lengthy approval process is delaying time to hire.
Use these insights to streamline workflows, automate repetitive tasks and reallocate resources to channels with better ROI.
Strategic investment in talent
Cost per hire data can also inform your long-term talent strategies. Understanding how much it costs to fill different roles helps you prioritize spending based on business goals. For example, you might choose to invest more in recruiting for roles that directly impact revenue or growth and find more efficient solutions when hiring for support positions.
You can also use historical cost data to forecast future hiring needs and set more accurate budgets. Combined with other metrics, such as time to hire and quality of hire, cost per hire provides a clearer picture of which strategies lead to the best outcomes.
