Everything You Need to Know About Cost Per Hire
Cost per hire is a metric for measuring the total amount of money that a company spends when hiring new employees.
It is calculated by adding all the costs spent for every recruitment activity and dividing them by the number of successful hires within a specific period of time.
The cost per hire formula:
Cost per Hire (CPH) = Total Recruitment Costs ÷ Number of Hires
Example:
If a company spends $20,000 on recruitment activities and successfully hired 4 new employees, the cost per hire would be:
$20,000 ÷ 4 = $5,000 per hire
Why do you need to calculate the cost per hire?
Calculating the cost per hire of a company can help to evaluate the effectiveness of their hiring process and recruitment strategies that were applied.
A lower cost per hire is usually a positive sign because it indicates that the recruitment process is efficient and working well, allowing the company to attract and hire new employees without spending too much.
A higher cost per hire, on the other hand, could mean that there are inefficiencies in the hiring process. It could be because of a long recruitment process, ineffective advertising expenses or difficulty in finding qualified candidates.
However, you should keep in mind that a higher cost per hire does not always mean negative – especially when you are hiring for executive level roles or other types of senior and high-level positions. This usually takes additional investment because securing top talent for these positions are necessary.
Yield ratio and cost per hire
Yield ratio is another recruitment metric used to measure the percentage of candidates who successfully move from one stage of the hiring process to the next.
Measuring the yield ratio helps the hiring company to gauge and evaluate whether the recruitment process is effective and help them see where candidates are being filtered out.
The yield ration formula:
Yield ratio = (Number of candidates advancing to the next stage ÷ Number of candidates at the previous stage) × 100
Example: There were 200 people that applied for the job. Only 40 are selected for interviews. So the yield ratio calculation would be:
Yield Ratio = (40 ÷ 200) × 100 = 20%
This means that 20% of applicants moved from the application stage to the interview stage.
Companies can calculate yield ratios for each hiring stage, such as:
- Application to screening
- Screening to interview
- Interview to final Interview
- Final Interview to job offer
- Job offer to Successful hire
When your yield ratio is high, it usually means that the recruitment or hiring stage produces a larger proportion of qualified applicants. A lower yield ratio on the other hand, suggests some inefficiencies in the hiring process.
Is the yield ratio the same as the cost per hire?
No. Yield ratio is not the same as the cost per hire – they measure two different aspects of recruitment.
The cost per hire measures how much the company or organization spends to hire one employee.
The yield ratio measures the effectiveness of the hiring process from moving a candidate from one stage to the next.
The only co-relation they have is when the yield ratio is low, it may increase the cost per hire because the recruiters have to spend more hours in sourcing, screening, and interviewing the candidates. While if the yield ratio is high, it may reduce the cost per hire because lesser time is being spent.
What can drive up the cost per hire?
There are more than one factor that can drive up a company’s cost per hire. Knowing what influences the recruitment expenses can help companies and organizations identify opportunities to improve their hiring efficiency, save costs and make better talent acquisition decisions.
Some of the most common factors that affect cost per hire include:
- Job ads/job posts – these are all costs associated with posting job ads on online platforms such as boards, social media, and other recruitment channels
- Recruitment agency fees – external recruitment agencies often charge a percentage of the candidate’s salary once they get hired, this ‘placement fee’ is paid by the hiring company when they partner with an agency
- Technological recruitment tools – using ATS or applicant tracking systems, recruitment softwares, and candidate assessment tools will also contribute to drive up the hiring costs because they are not free and often requires paid subscription
- Interview and screening costs – each working hour that your recruiters and hiring managers conduct interviews and screen a candidate is a paid work time that the company is spending
- Background checks activities – these activities includes verification services, security assessment, skills and personality assessments which often requires payment from service providers
- Executive recruiting – hiring for senior and executive roles typically costs more because of smaller talent pool and high competition
- Onboarding expenses – these include conducting training and orientations, equipment used, presentation materials, etc.
Is there an ideal cost per hire amount?
In reality, there is no “ideal” amount of the cost per hire. The cost of your recruitment is highly dependent on many factors such as your company size, the industry you belong to, and the level or seniority of the roles you are filling.
To determine if your recruitment costs are “on track” companies can compare to national benchmarks. The Society for Human Resource Management (SHRM) 2025 Benchmarking Report, the national average cost per hire in the United States stands at $5,475 for non-executive roles.
However, this average changes drastically when hiring for leadership positions. The data indicates that the average cost per hire for an executive-level position is $35,879.
Read full article here: 2025 Benchmarking Reports
What are the industries that have the highest average cost per hire?
The industries with the highest average cost per hire are those that require highly specialized skills, tedious credential verification, and those that are facing talent shortages consistently over the years. These are:
Healthcare and Medicine ($9,000 – $12,000+)
The increase in costs are driven by demanding regulatory compliance, background checking, drug tests and other physical examinations, and licensing verifications, and the tight competition for medical professionals.
Technology and Engineering ($6,200 – $9,700+)
This industry has one of the highest average costs per hire because of its constant demand for highly technical skill sets. Companies in this industry are also forced to invest heavily in premium recruitment tools and platforms.
Skilled Trades & Manufacturing ($10,000+)
Because it is difficult to find skilled tradespeople, companies are forced to invest largely in their recruitment process so that they can expand it. In contrast, high-volume industries like Retail and Hospitality has the lowest average cost per hire at roughly $2,700, utilizing large local applicant pools
Conclusion
Understanding and keeping track of your company’s cost per hire amount is essential to have cost-effective recruitment strategies and to indicate which stage of the process lacks effectiveness. Once you identify these pain points, you can make better hiring decisions and ensure that your recruitment investments are not wasted.