A metric used to calculate the total cost of hiring a new employee, including recruitment, advertising, and onboarding expenses.
What Is Cost per Hire?
Cost per hire (CPH) is a key HR metric that measures the average amount of money spent to hire a new employee. It includes both internal and external recruitment expenses and reflects the total investment made by an organization to attract, hire, and onboard new talent.
The formula:
Cost per Hire = (Internal Costs + External Costs) / Total Number of Hires
This metric is used across industries to evaluate recruiting efficiency, budget management, and overall hiring strategy.
Why Is Cost per Hire Important?
HR and talent acquisition teams track cost per hire to:
- Manage recruitment budgets more effectively
- Evaluate the efficiency of different hiring methods and sources
- Justify HR investments and resource allocation to leadership
- Benchmark performance over time or against industry standards
- Identify cost-saving opportunities in the hiring process
What Costs Are Included in Cost per Hire?
Internal Recruitment Costs:
- Salaries of in-house recruiters and hiring managers
- Employee referral bonuses
- Internal job advertising and communication
- Onboarding and orientation costs
- Training and development for new hires
- Tools or software used for applicant tracking
External Recruitment Costs:
- Job board or advertisement fees
- Recruitment agency or headhunter fees
- Background checks, drug screening, and assessments
- Relocation or travel expenses for candidates
- Technology or platforms used in the recruitment process (e.g., video interviews)
How to Calculate Cost per Hire (Step-by-Step)
- Define the time frame (monthly, quarterly, yearly, or per campaign).
- Add all internal and external recruitment costs during that period.
- Count the number of hires made during the same period.
- Divide total recruitment costs by total number of hires.
Example:
If your company spends $50,000 on recruitment in Q1 and makes 10 hires:
CPH = $50,000 / 10 = $5,000 per hire
Alternative Cost per Hire Methods
- Cost-per-Hire Comparable (CPHC): A benchmark-friendly method that uses a consistent definition of cost categories across companies.
- Recruiting Cost Rate (RCR): Expresses CPH as a percentage of the first-year annual compensation for new hires (used by SHRM/ANSI).
Factors That Influence Cost per Hire
Several variables can significantly impact your CPH, including:
| Factor | Impact |
| Recruitment channels | Paid ads and agencies increase costs; referrals lower it |
| Time to fill | Longer processes mean higher recruiter and overhead costs |
| Job role seniority | Specialized or leadership roles usually cost more to hire |
| Company size and structure | Larger or more decentralized orgs may have higher recruitment overhead |
| Geographic location | Urban or global hiring increases travel and relocation expenses |
| Turnover rate | Frequent hiring drives up long-term recruitment costs |
How to Optimize Cost per Hire
- Leverage employee referral programs
- Invest in recruitment technology to reduce manual work
- Build a strong employer brand to reduce ad spending
- Use data analytics to evaluate and optimize sourcing channels
- Shorten time-to-hire to reduce labor costs associated with recruiting
Cost per hire is a critical metric for understanding how much your company invests in hiring talent. It not only reflects recruiting efficiency but also reveals opportunities to streamline processes and reduce costs. By tracking and optimizing CPH, companies can attract top talent in a more cost-effective, data-driven manner.
