What Is Cost Per Hire?
Cost per hire is the amount of money an organization spends to bring in a new employee, including all expenses accumulated throughout the recruitment process.
What Drives Recruitment Costs?
Every hire is the sum of multiple expenses that build up across the recruitment journey. Understanding these cost components will help you identify areas where money is well spent and where it might be wasted.
Sourcing & Recruitment Advertising Prices
Posting jobs on premium boards like LinkedIn, Indeed, and other social media or niche industry sites often comes with a per-listing or subscription fee. Sponsored ads and targeted social media campaigns add to this expense, especially in competitive talent markets where visibility is key. The more competitive the role, the more you’ll need to invest in exposure-quickly driving up recruitment costs.
Time spent on screening & onboarding
Every hour an HR professional, hiring manager, or interview panel spends reviewing resumes, conducting interviews, and coordinating onboarding is time taken away from their core duties. When hiring for multiple roles or complex positions, these labor costs can compound significantly, especially if several interview rounds are required.
Marketing Costs
Employer branding campaigns-such as producing videos, hosting webinars, attending job fairs, or maintaining a polished career site-require creative talent, event fees, and promotional materials. These investments can be substantial, but they are essential for attracting high-quality candidates and reducing time-to-fill.
Referral Fees
While employee referrals are often cost-effective compared to outsourced recruitment process or agency fees, they still require cash incentives-sometimes ranging from a few hundred to several thousand dollars for hard-to-fill positions. If multiple hires are made via referrals in a short period, the payout can noticeably impact recruitment budgets.
Other components
Other tactics and resources can also contribute to recruitment costs, but their impact varies from company to company. Some organizations may rely heavily on these, while others might not use them at all-making their inclusion in cost per hire calculations dependent on specific hiring strategies. Examples are:
- Pre-employment background verification and drug testing
- Fees for recruitment agencies or hiring consultants
- Employee relocation assistance packages
- Subscriptions for Applicant Tracking Systems (ATS)
- Costs for training resources and onboarding materials
How to Calculate Cost Per Hire?
Accurately calculating your Cost per Hire (CPH) is essential for understanding the true financial impact of recruitment. Without a precise number, organizations risk underestimating hiring expenses, misallocating budgets, and missing opportunities to optimize their hiring process. A clear, step-by-step approach ensures your data is reliable and actionable. Here’s how to do it:
Set a clear measurement period. Decide whether you’ll calculate CPH monthly, quarterly, or annually. A defined timeframe allows you to track trends, compare results, and measure improvements over time.
Gather all recruitment costs. Include every expense tied to hiring a new employee: sourcing and recruitment advertising prices, time spent on screening and onboarding, recruitment marketing costs, referral fees, and external recruiting costs like agency fees, relocation packages, or background checks. Combining these internal and external costs ensures you capture the full picture of what’s driving your CPH.
Count the total number of hires. Record every hire made during your chosen period-full-time, part-time, or contract. This number is essential for calculating an accurate average cost per hire.
Apply the CPH formula. This formula provides a clear average cost per employee hired, serving as your primary recruitment cost benchmark.
Cost per Hire (CPH) = Total Recruitment Costs ÷ Number of Hires
Apply the CPH formula. This formula provides a clear average cost per employee hired, serving as your primary recruitment cost benchmark.
Break costs down by category (optional) Segmenting expenses by category-such as advertising, referral programs, or agency fees-makes it easier to identify which areas are cost-effective and which are draining your budget.
Review and validate your data Check your numbers for completeness and accuracy. Even small data gaps can distort your CPH and lead to misguided budget decisions.
Why Calculate Cost Per Hire?
Failing to calculate your Cost per Hire (CPH) can leave an organization in the dark about its true recruitment spending. Without this metric, hiring budgets can spiral out of control, expensive recruitment channels may go unchecked, and inefficiencies in the process can remain hidden. This can lead to wasted resources, slower hiring, and even losing top talent to competitors who recruit faster and more efficiently. Calculating CPH turns recruitment from a guessing game into a data-driven function that supports both cost control and quality hiring. Key reasons to track it-and the wins you gain from each:
- Ensures precise budget forecasting Tracking CPH ensures your recruitment budget is realistic and grounded in actual spending patterns. This helps avoid unexpected overruns and allows you to confidently forecast future hiring costs-leading to better financial control and more predictable cash flow.
- Pinpoints the most cost-efficient hiring channels By knowing exactly where your best hires are coming from and how much each channel costs, you can double down on high-performing, low-cost sources like referrals, and cut back on expensive, low-yield platforms. This improves ROI and shortens time-to-hire.
- Enhances the efficiency of the recruitment process CPH highlights inefficiencies such as prolonged screening times, unnecessary interview rounds, or over-reliance on costly agencies. By identifying these, you can streamline processes, speed up hiring, and reduce expenses without sacrificing candidate quality.
- Informs and strengthens strategic hiring decisions With accurate CPH data, HR leaders can justify investments in better recruitment tools, training programs, employer branding, or internal recruitment teams. This ensures that hiring decisions are backed by measurable value, not guesswork.
What Makes Cost Per Hire Expensive?
Different organizations face different cost per hire influencers because their roles, industries, locations, and operating models vary. Knowing these influencers helps you set realistic benchmarks, spot where costs creep in, and choose the right levers to bring CPH down. Expect prices to differ meaningfully across company sizes (startup vs. enterprise), business types (agency vs. in-house), and industries (e.g., healthcare vs. tech).
Role type & seniority level
Specialized and leadership roles typically demand broader sourcing, higher-touch assessments, and longer hiring cycles. That means more spend on niche job boards, executive searches, structured assessments, panel interviews, and candidate travel. Longer time-to-fill also increases internal labor hours (recruiters, HR, hiring managers). Sweeteners like sign-on bonuses or relocation (often counted as external costs) can add substantially to the final figure.
Industry dynamics
In tight labor markets (e.g., healthcare, cybersecurity, advanced manufacturing), talent scarcity pushes up ad bids and agency reliance. Regulated industries may require deeper background checks, credentialing, and compliance onboarding-each adding vendor fees and staff time.
Competitive industries also drive higher referral bonuses and more extensive recruitment marketing to stand out, lifting both internal and external spend.
Geographic location
Hiring in hot metro areas increases advertising competition and often requires more sourcing touches to win candidates, adding to ad budgets and recruiter time. Distributed or out-of-state hiring can introduce travel, candidate fly-ins, and relocation support.
Cross-border hires may involve immigration counsel and processing fees. Even if salary isn’t part of CPH, location-driven tactics (heavier employer branding, events, localized campaigns) raise recruitment program costs.
Company size & maturity
Smaller organizations often face higher per-hire costs because fixed expenses (ATS, branding assets, agency minimums) are spread over fewer hires. They may also rely more on external agencies due to limited internal TA capacity.
Larger companies benefit from economies of scale (in-house sourcing, preferred vendor rates, talent pipelines), which can lower ad and agency spend-but complex processes can increase interview hours, assessment tooling, and coordination costs if not well managed.
Conclusion
Cost per Hire is more than a line in your HR report-it’s a compass that guides better hiring strategies. By tracking, analyzing, and acting on this metric, organizations can:
- Forecast budgets with confidence
- Optimize hiring channels
- Reduce wasted spend
- Align recruitment with business growth
When calculated consistently and paired with relevant benchmarks, CPH becomes a powerful tool for smarter, more cost-effective hiring.