Cost-per-Hire: Detailed Guide with Calculations, Expense Types & Best Practices

The cost of onboarding a new hire can become expensive, and if you've never analyzed or even estimated how much your company is spending on adding an employee to your team, you may be surprised.

When you dissect your decisions and spending metrics in the hiring process, you can create a cost per new hire estimate that helps you to make informed, smart decisions in the future. These choices result in improved efficiency and more accurate budgetary preparation. These benefits then allow you to increase the company’s productivity and help to improve your bottom line.

In this article, you'll learn what cost per hire is, why it is essential to your business, how it's calculated, and a cost per hire example to demonstrate.

What is cost per hire?

Cost per hire is a recruiting metric that represents the average amount of money spent on each new hire brought into an organization.

This includes all expenses accumulated throughout the recruitment process, including:

Sourcing and recruitment advertising costs
Screening and onboarding time
Referral bonuses
Recruitment marketing costs
And any other tactic or resource used in service of hiring a new candidate

Here’s a simple example of cost per hire to help illustrate the concept.

An organization hires 20 people in a year. They spend about $85,000 in total on activities related to the recruitment process. With that math, the cost per hire for the organization would be $4,250.

While the concept may be simple, understanding the nuances requires a bit of a deeper dive. Not all costs associated with hiring are apparent until you take the time to break down the work and resources needed to post a job, assess applicants, and, finally, onboard the recipient of the position.

It's important to avoid overlooking any potential costs when performing your calculation. Missed figures can result in missing out on the potential to improve in those areas, and you’ll end up with an inaccurate estimate of your cost per hire.

Why does cost per hire matter?

Understanding your company cost per hire is important for auditing and your overall recruitment spend, and will help you to refine the areas where you are spending your resources.

Here are five reasons why calculating, tracking, and understanding cost per hire is important for recruitment teams.

Enhances budget accuracy and planning

Understanding cost per hire provides recruitment teams with a clear view of their financial commitments. By accurately calculating all associated costs, teams can allocate budgets more effectively and forecast future hiring expenses. This ensures resources are directed toward the most effective recruiting strategies, minimizing waste and maximizing ROI.

Identifies cost-effective hiring channels

Breaking down the cost per hire helps pinpoint which recruitment channels yield the best results for the least expense. Whether it’s job boards, social media ads, or employee referrals, identifying high-performing channels enables teams to optimize spending and focus on what works best for their organization.

Improves recruitment efficiency

Tracking cost per hire alongside other metrics, such as time to fill or candidate quality, highlights inefficiencies in the hiring process. Recruitment teams can identify bottlenecks, adjust strategies, and streamline workflows to reduce costs and time spent per hire, ensuring smoother operations.

Supports strategic decision-making

Cost per hire is essential for aligning recruitment strategies with broader organizational goals. For example, if hiring for a critical, high-cost role, teams can justify expenses based on the impact of filling the position on the company’s success. This metric offers a data-backed approach to securing leadership buy-in and resources.

Benchmarks performance against industry standards

Regularly analyzing cost per hire helps recruitment teams benchmark their performance against industry standards. This comparison highlights whether they are spending effectively or need to recalibrate efforts to remain competitive in attracting top talent.

Strengthens accountability and reporting

Cost per hire equips teams with a tangible metric to demonstrate recruitment ROI to stakeholders. By presenting clear, data-driven insights, recruiters can validate their strategies and justify budgets while maintaining accountability for the organization’s financial investments in hiring.

Understanding and leveraging cost per hire is not just about tracking expenses; it’s about refining strategies, improving efficiency, and aligning recruitment efforts with overall business success.

What are recruiting costs?

There are many recruiting costs to include and monitor when calculating your cost per hire, and, unfortunately, not all of them come in the form of direct spending that appears on the balance sheet. That would be all too easy!

A standard method of approaching recruiting cost calculation is to break your costs into two groups, internal and external costs.

But what are internal and external costs in recruitment? What are some examples of internal and external costs? Unfortunately, it can become all too easy to feel overwhelmed and brush calculating recruitment costs to the side. But this will cost your company money and time in the long run.

External recruitment costs

External recruitment costs refer to expenses incurred from third-party resources during the hiring process.

These costs often involve services and platforms outside the organization, such as job boards, recruitment agencies, and external tools. Tracking these costs helps organizations evaluate the ROI of outsourced recruitment efforts.

Here’s a breakdown of common external recruitment costs.

Internal recruitment costs

Internal recruitment costs refer to the expenses incurred within an organization during the hiring process.

These costs encompass resources, time, and tools allocated to recruitment activities that originate internally, such as staff salaries and operational overhead. A clear understanding of these costs allows organizations to assess the efficiency of their recruitment process and better plan for future hires.

Here’s a breakdown of common internal recruitment costs.

Your company's recruiting process will determine how much of your costs are attributable to each expense. The more thorough you are in assessing the costs of your recruiting when calculating cost per hire, the more accurate your resulting calculation will be.

The cost per hire formula

While that may seem like a lot of considerations to keep in mind when running your calculations, the good news is that once you've gathered your various sources of spending, it's simple to perform your calculations.

To calculate your cost per hire:

Add up both your external costs and internal costs of all new hires in a given period.
Then, divide the resulting number by the total number of hires in that same period.
You’re left with the cost of onboarding a new hire, from identification to assessment and on through hiring and training.

How to calculate cost per hire

Once you understand all of the potential expenses that might be included in a recruitment program, and have an understanding of the cost per hire formula, calculating this metric is fairly straight forward.

Here’s a step-by-step guide to calculating cost-per-hire at any organization.

1. Define your measurement period

Before starting, decide the time frame you’re analyzing. This could be a month, quarter, or year, depending on your reporting needs. Consistency is key to making meaningful comparisons over time.

2. Gather all internal recruitment costs

Compile every expense incurred within your organization during the recruitment process. Refer to the internal recruitment costs list for guidance.

3. Account for external recruitment costs

Next, collect all external costs associated with hiring. Refer to the external recruitment costs list for comprehensive categories. Add any additional expenses that we may have missed.

4. Determine the total number of hires

Identify how many employees were hired during the selected period. Include only those who were fully onboarded and joined the company.

Be sure to:

Exclude temporary hires unless they’re part of the calculation scope.
Separate full-time hires from part-time or contract hires if needed.

5. Plug your numbers into the formula

As a reminder, the cost-per-hire formula is:

Cost per hire = (Total internal costs + Total external costs) / Total number of hires

For example, if:

Internal costs = $50,000
External costs = $30,000
Total hires = 20

Cost per hire = ($50,000 + $30,000) / 20 = $4,000

6. Break costs down by category (optional)

For deeper insights, break down your costs by category:

Compare internal vs. external costs.
Identify cost differences across departments or locations.
Assess the cost-effectiveness of different hiring channels.

7. Review and validate your data

Double-check your calculations to ensure all costs are included and accurately categorized. Validation can involve cross-referencing with finance or HR teams to confirm budget allocations.

8. Use cost per hire as a benchmark

Once you’ve calculated the cost per hire, use it as a benchmark for:

Evaluating efficiency over time.
Comparing performance with industry standards.
Setting goals for reducing costs or improving hiring quality.

9. Regularly revisit and update your calculation

Recruitment processes and expenses can change over time. Recalculate cost per hire regularly to stay updated on trends and ensure your strategies remain data-driven.

By following these steps, you’ll have a clear, reliable understanding of your cost per hire and its implications for your recruitment strategy. This approach not only promotes financial transparency but also empowers teams to make informed, strategic hiring decisions.

How do you use cost per hire?

Calculating your cost per hire is only a worthwhile experience if you take the information you gather and use it productively.

When properly implemented, you can use cost per hire calculations to create a guide when allocating resources to recruiting. Here are the key steps to take when calculating cost per hire to get the most value out of the process:

Quantify your cost per hire

The more detailed data you can gather on cost per hire, the more avenues it will open for you. This means finding your overall costs and itemizing your costs based on the different areas of spending. This information can be combined with additional metrics such as how many applicants you receive from each method, where the successful applicants are coming from, and other similar assessments.

Analyze the results

With your detailed cost per hire data, you can begin to compare and contrast, identifying where money is well spent and where you are wasteful in the recruiting process. Dig into areas where your recruiting cost per hire is significantly higher and explore any potential causes for the lagging results.

Compare across departments

In addition to calculating cost per hire based on different recruiting tools and methods, you can also compare the metric internally. If you have multiple departments, compare cost per hire stats by department. You can identify strong points from successful departments and then apply these strategies to others and improve the company’s overall results.

Research industry standards

A useful benchmark for assessing your results is industry averages. While overall average costs in multi-industry studies have yielded results in the low $4,000's, there will be variation across industries, and business sizes, so seek out data from similar businesses if possible. You can compare the data between competitors, and research their hiring process to implement their strategies should you be inspired.

Apply what you've learned

With all of your analysis complete, you can begin enacting changes based on the cost per hire results and what they say about your process. Adjust spending to focus on more fruitful recruiting sources and trim costs where excess is.

Cost per hire: other metrics

As we jump into the world of cost per hire, you can identify two other subcategories to enhance your recruitment process, reduce the overall cost per hire, and raise the overall quality of hire. Here are the key metrics relating to cost per hire:

Cost per hire comparable (CPHC)

This cost per hire falls under the same method as the standard CPH, but the cost per hire comparable (CPHC) uses different data. The comparable breed of cost per hire focuses on every fairly common cost across companies. So, for example, it may exclude the cost of travel expenses but include job listing fees if the company (and their competitors) were online businesses and required working from home.

Recruiting Cost Rate / Recruiting Cost Ratio

This formula calculates the cost of acquiring new talent. In short, the recruiting cost rate/ratio (RCR) calculates how much money a company is spending on all the elements needed to find, attract, and hire new employees.

The formula to discover your recruiting cost rate is:

Your external costs + Your internal costs / The total compensation of new hires * 100

Example of calculating cost per hire

Sometimes, it’s tricky to understand a calculation and see the impact unless you have a solid example to learn from. So here’s an example of calculating cost per hire with that in mind.

A company performs an end-of-year evaluation of its hiring practices in the prior calendar year. It spent a total of $6,500 on external spending for recruiting during the year and an additional $9,500 on internal costs such as staff salary for hours spent on recruiting and lost productivity during the hires' early weeks.

During this period, the company hired four new employees through the recruiting process. By dividing the total spending of $16,000 by the four employees hired, the company determines that the cost of onboarding a new hire in this period was $4,000.

There's a lot to keep track of when overseeing a company, and it can be all too easy to let the small details slip through the cracks. Calculating the cost of onboarding a new hire may seem like the kind of information you can afford to estimate, but once you begin closely tracking your recruiting costs, you'll see the mistake in that line of thinking.

Knowing your cost per hire allows you to identify inefficiencies and refine your process in ways that not only save money in the immediate term by reducing recruiting costs but also by switching your focus to more effective hiring methods.

This, in turn, raises the quality of hire for your new employees. An increased quality of hire is an even better way to improve your bottom line because it leads to an overall increase in company production. So if you haven't taken the time to find your cost per hire, quit missing out on this vital metric.

Cost per hire benchmarks

The Society of Human Resource Managemen t has recently discovered that the average cost per hire was $4,700 as of 2022, with executive cost per hiring ballooning to $28,000 on average. However, this figure can be much higher or much lower depending on the size of your company and the industry it falls under.

Different roles and various industries can impact your average cost to hire because the roles may take longer to fill (which affects your time-to-hire rate). For example, an engineering role may take longer to fill and require more sourcing. This will increase your overall cost per hire.

It’s clear that the cost per hire will rise and fall from the average, depending on the industry and role you’re trying to recruit for. For this reason, the average should be taken with a pinch of salt. If yours is far higher or lower, there’s likely a good reason for this.

Cost per hire statistics in 2024

We’ve got the latest data to share about cost-to-hire rates. Remember, these statistics shouldn’t be interpreted as ‘right or wrong.’ This rate isn’t as black and white as that. However, it’s a good benchmark. So, here are cost per hire statistics in 2024:

The average cost per hire is exactly $4,683.
In the United States, it takes between 36 and 42 days to fill the average role.
Human Resources use 15% of their expenses on recruitment on average.
Generally, it costs 40% of an employee’s base salary to hire one new employee, including benefits.
On average, it takes around 12 weeks for a new employee to become settled and show total productivity levels at work.
In the United States, the median cost per hire is $1633. This shows that some roles require a lot more money to fill than others.
Small businesses and companies that have between 100 - 999 employees spend, on average, more than $1000 on each employee for training every year. That’s a staggering $658 more than larger businesses.

Cost per hire - is it worth all the effort?

Crunching numbers and analyzing data can be a company’s worst nightmare. Being presented with figures that are too high or too low often prevents an organization from keeping track. The truth is, knowing your cost-per-hire allows you so much more than access to data.

When put together as a story by spotting patterns, the numbers can represent areas of strength and weakness in your recruitment process.

So, when you ask, ‘is calculating the cost per hire worth the effort and time?’, our answer is always, fundamentally yes.

Cost per hire FAQs

What should be included in recruiting costs?

Recruiting costs should include internal expenses, such as recruiter salaries, onboarding programs, and software tools, as well as external costs, like job board fees, agency commissions, and background checks. A comprehensive breakdown ensures accurate calculations and better budget planning.

What’s a good benchmark for cost per hire?

The average cost per hire is approximately $4,700, according to the Society for Human Resource Management (SHRM). However, this figure varies significantly by role, industry, and company size, with executive roles averaging up to $28,000.

What should I include in my recruiting budget?

A recruiting budget should cover internal costs like recruiter salaries, training, and software tools, as well as external costs such as job postings, agency fees, relocation expenses, and employer branding activities. Ensure alignment with your hiring goals and company growth plans.

How do I know if my recruiting budget is enough?

To determine if your recruiting budget is sufficient, compare your cost per hire with industry benchmarks, monitor your hiring timeline, and assess candidate quality. If bottlenecks occur, reevaluate underfunded areas like sourcing, branding, or technology investments.

Everything you need to know about cost per hire