To figure out your cost per hire, you just need to add up all your recruiting costs—both internal and external—and divide that number by how many people you hired in a given timeframe. It's a simple formula, but it gives you a powerful snapshot of how efficient your talent acquisition really is.
Before we get into the math, it’s important to understand why this metric is such a game-changer for your business. Tracking your cost per hire (CPH) isn’t just about pinching pennies. It’s about making smarter, more strategic decisions that directly impact your bottom line and your ability to grow.
Think of CPH as a diagnostic tool for your entire hiring machine. A consistently high number might be a red flag for deeper issues, like a weak employer brand that forces you to spend more on advertising. Or maybe it points to a clunky, drawn-out interview process that’s racking up internal costs. By keeping an eye on this metric, you can pinpoint exactly where things are getting expensive or inefficient.
A clear CPH gives you the hard data you need to justify recruitment budgets. Instead of guessing, you can confidently forecast the investment required to hit your hiring goals. This is a big deal, especially when you look at the national averages.
The cost per hire (CPH) is one of the most respected metrics in talent acquisition, quantifying the total spend needed to fill a role. According to the Society for Human Resource Management (SHRM), the average CPH across all industries is about $4,700. But for specialized or executive roles, that number can easily climb to $20,000 or more.
This data also shines a light on the real ROI of your sourcing channels. Are those expensive job boards actually delivering quality candidates, or is your employee referral program quietly giving you a much better return? Without CPH, you're flying blind. To really dig into these numbers effectively, you need to apply solid business analysis best practices when you're looking at your results.
Ultimately, tracking CPH leads to real, tangible improvements:
Understanding how AI is impacting recruitment KPIs is another huge piece of the puzzle. It can help you refine your strategy and make your CPH data even more powerful.
Let's break down how to actually calculate your cost per hire. The good news? At its heart, the formula is refreshingly straightforward, giving you a powerful starting point for getting a handle on your recruitment spending.
Here it is: (Total Internal Recruiting Costs + Total External Recruiting Costs) / Total Number of Hires
This simple equation packs a punch, offering insights that are critical for fine-tuning your entire hiring strategy.
For instance, imagine your company spent $75,000 on all hiring-related activities last quarter and successfully brought on 15 new people. Your cost per hire would be a clean $5,000. It's a tangible number you can track, question, and improve.
Before you even think about crunching numbers, you need to decide on the timeframe you're measuring. Most teams stick to one of two options:
The right choice really depends on your company's rhythm. A fast-moving startup will likely get more value from quarterly snapshots, while a more established organization might find an annual review is all they need for strategic planning.
Key Takeaway: The final number is only half the story. The real gold is in what you uncover when you dig into each part of the equation. Understanding what actually makes up your internal and external costs is where the actionable insights are hiding.
This approach makes the formula feel less like a test and more like a diagnostic tool. As you start adding things up, leaning on reliable estimation tools can be a huge help, especially when you need to assign a dollar value to something less tangible, like a hiring manager's time.
Think of the next sections as a detailed checklist to make sure not a single expense slips through the cracks.
This is where most companies get their cost-per-hire calculation wrong. External costs are easy—they show up as neat invoices and clear line items on a spreadsheet. Internal costs? They're the sneaky ones, often invisible because they’re spread across different departments and buried in everyday work.
If you overlook these costs, your CPH isn't just incomplete; it's misleading.
The single biggest hidden expense is time. Every single hour your team spends on recruiting is an hour they aren't dedicating to their main jobs. This isn't just about your recruiters. It’s also the hiring managers, the interview panelists, and the admin staff coordinating schedules. Some estimates suggest these "soft costs" can make up a whopping 60% of your total hiring expenses.
So, how do you put a dollar value on that time? It's simpler than you might think.
Start by figuring out the hourly rate for each person involved in the hiring process (just divide their annual salary by 2,080 working hours). Then, you just need to track the hours they actually spend on recruiting tasks.
Let's say a hiring manager earns $100,000 a year, which works out to about $48/hour. If they spend a total of 20 hours sourcing and interviewing candidates for just one role, that's $960 in soft costs right there. That's a very real expense that absolutely has to be in your CPH calculation.
Don't forget to track the time your team spends on things like resume reviews, internal sync-ups after interviews, and those initial screening calls. These hours stack up fast and represent a huge internal investment.
Beyond salaries, other internal costs often slip through the cracks. Think about employee referral bonuses or even the overhead costs for your HR department. To get your CPH right, you have to get good at spotting and tracking these expenses. Many teams also find that experimenting with unconventional sourcing methods to find hidden talent can shift where that internal time is spent, so tracking is key.
To make this easier, I've put together a checklist of the most common—and most commonly missed—internal costs.
This checklist breaks down the internal expenses you need to be tracking. Use it to make sure nothing important gets left out of your cost-per-hire formula.
By keeping a close eye on these categories, you'll paint a much more accurate picture of what it truly costs to bring new talent on board.
External recruiting costs often feel like the easiest part of the CPH formula. After all, they come with neat invoices and clear price tags. But it's surprisingly easy to let things slip through the cracks.
When you overlook these costs, your data gets skewed, and you end up with a foggy picture of what it actually takes to bring someone new on board. To get a genuinely accurate cost per hire, you have to be relentless about tracking every dollar spent outside your organization.
This means going beyond the usual suspects. Most teams are pretty good at logging the obvious stuff—job board fees and the commissions paid out to third-party agencies. Where the real accuracy comes in, though, is digging a layer deeper. You have to include the cost of the technology that powers your entire recruiting machine. It’s not a minor line item; it’s a foundational investment.
Here are the critical external expenses that absolutely must be part of your calculation:
Recruitment Software: This is the big one. Tally up the annual or monthly subscription fees for your Applicant Tracking System (ATS), any candidate assessment tools you use, and video interviewing platforms.
Advertising and Sourcing: This bucket is bigger than just standard job postings. Think about your subscriptions to premium sourcing platforms. Learning about LinkedIn Recruiter pricing can be a real eye-opener, showing just how quickly these specialized costs can add up.
Candidate Vetting: Don't forget the per-candidate fees for third-party services. This includes background checks, reference checks, and any required drug screenings. They are direct, unavoidable costs tied to a successful hire.
Candidate Experience Expenses: If you fly candidates in for on-site interviews, every dollar spent on their travel, hotel, and meals needs to be included. This category also covers any relocation packages or signing bonuses you offer to seal the deal.
By diligently tracking every one of these external costs, you graduate from a rough estimate to a precise, defensible metric. A complete financial picture is the only way to make truly informed decisions about your hiring budget and overall strategy.
Knowing your cost per hire is a great start, but the real magic happens when you use that number to build a smarter, more cost-effective recruiting strategy. The good news? Lowering your CPH doesn't mean you have to compromise on talent. In fact, the best strategies often lead to better hires who stick around longer.
The goal is to work smarter, not just spend less. This is all about refining your processes, tapping into the networks you already have, and building a brand that great people want to be a part of. Small, consistent tweaks can add up to some serious savings over time.
Your employer brand is easily your most powerful, cost-saving tool in the shed. When candidates already know and respect your company, they come to you. This simple shift drastically cuts down on how much you spend on job ads and sourcing.
A positive reputation isn't just a nice-to-have; it can slash your CPH by as much as 43%.
Start by showing off your company culture on social media and your careers page. Share employee stories, team wins, and the little things that make your workplace unique. This kind of authentic content works like a 24/7 advertisement that costs you next to nothing.
Let's be honest, your current team is your best source for high-quality candidates who already get your culture. An employee referral program is consistently one of the most cost-effective hiring channels out there, often cutting both your time-to-hire and overall expenses.
To get it right, offer meaningful incentives and make the process ridiculously simple. A small bonus and crystal-clear communication can turn your entire team into a proactive recruiting force.
Pro Tip: Don't just sit back and wait for referrals to trickle in. Actively ask your managers and top performers if they know anyone who'd be a great fit for open roles. This direct approach almost always yields the best results.
Time is money—especially when you factor in the hours your team sinks into interviewing candidates. A long, drawn-out process doesn't just inflate your internal costs; it can also cause you to lose top talent to competitors who move faster.
Here are a few ways to tighten things up:
By zeroing in on these key areas, you can transform your CPH from a simple metric into a roadmap for building a more efficient hiring machine. Embracing modern tech is also a huge part of this; learning about the best AI tools for recruiters can help automate tedious tasks and free up your team for more important, strategic work.
Once you start digging into the cost-per-hire formula, you'll naturally run into some practical questions. Getting the details right from the start is what makes this metric a strategic tool instead of just another number on a spreadsheet.
Let's walk through some of the most common ones I hear.
For most companies, running the numbers quarterly and annually hits the sweet spot. A quarterly check-in is perfect for spotting trends as they emerge, allowing you to tweak your strategy before costs get out of hand. The annual figure then gives you that solid, year-over-year benchmark for bigger-picture planning and budgeting.
Now, if you're in a high-growth startup or constantly scaling, you might want to switch to a monthly calculation. It's more work, but it provides real-time feedback that's invaluable when you're hiring at that kind of pace.
The biggest mistake I see is treating cost per hire as a one-and-done calculation. The real power comes from consistent tracking. That’s how it evolves from a simple data point into a roadmap for improvement.
This is the million-dollar question, and the honest answer is: it depends. There’s no magic number that works for everyone. A "good" CPH is completely relative to your industry, your city, and the types of roles you’re filling.
Hiring an entry-level customer service rep in a low-cost-of-living area will always be cheaper than sourcing a senior AI engineer in Silicon Valley. It just is.
Instead of getting hung up on industry averages, focus on benchmarking against yourself. The goal isn't to hit some arbitrary number—it's to see your own CPH trend downward over time while making sure your quality of hire stays high or even gets better. That's the win.
Yes, 100% yes. This is where the metric goes from interesting to incredibly insightful. When you segment your CPH by department, seniority level, or specific roles, you start to see the real story behind the numbers.
You’ll quickly confirm that hiring a senior developer costs a whole lot more than bringing on a junior marketing coordinator. But you'll also uncover which hiring funnels are leaking money and which ones are performing efficiently.
This level of detail lets you move from a blurry, company-wide average to sharp, actionable intelligence. It shows you exactly where to allocate your recruiting budget for the biggest impact.
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