Cost Per Hire

What is cost per hire?

Cost per hire (CPH) is a recruiting KPI that captures the average cost of bringing on a new employee, a fairly fundamental metric for understanding how well a recruitment process is actually running.

Studies suggest CPH tends to rise as a company matures, larger, more established companies tend to spend more per hire on average. It also shifts depending on the role itself, the seniority of the position, and a handful of other variables.

Why does it matter in talent acquisition?

CPH essentially measures how well a recruiting team is meeting its goals. A few reasons it’s worth tracking:

It improves efficiency. CPH highlights where recruiting is working well and where there’s room to find better talent at lower cost.

It helps with budgeting. Knowing your average cost per hire makes it easier to plan and allocate resources for future hiring needs.

It sets a useful benchmark. You can compare your CPH against industry norms or your own past performance to see how you’re trending.

Tracking it closely over time tends to save real time and resources across the whole hiring process, from sourcing through onboarding.

How do you calculate it?

CPH = (Total internal costs + Total external costs) ÷ Total number of hires

Internal costs cover things like recruiter salaries, administrative overhead, and training for recruitment staff. External costs include job ad spend, candidate travel and accommodation for interviews, and similar outside expenses.

How do you reduce it?

A few proven approaches:

Streamline the process. HRMS software can cut down on the time and resources recruitment eats up.

Lean on employee referrals. A solid referral incentive program tends to bring in qualified candidates more cheaply than other channels.

Invest in employer branding. A strong brand draws candidates directly, reducing reliance on paid job ads or recruitment agencies.

Use the right technology. Applicant tracking systems and similar tools make recruiting faster and cheaper overall.

Write better job descriptions. Clear, targeted postings attract the right candidates faster, cutting both time and cost.

Prioritize quality over speed. Hiring people who genuinely fit the role and culture reduces turnover down the line, which saves money in the long run too.

Run virtual interviews where it makes sense, since it cuts travel costs and saves time for everyone involved.

Build a talent pool so you’re not starting from scratch for every new opening.

Offer competitive pay upfront to attract the right people without dragging out negotiations.

Review your metrics regularly to catch inefficiencies early and adjust your approach as needed.

FAQs

1. What factors drive cost per hire?

Mostly a mix of internal and external costs, plus a few outside variables.

Internal: compliance costs, administrative costs, training and development
External: advertising and job postings, agency fees, candidate travel and accommodation, pre-employment assessments, onboarding and training
Other factors: company size, industry, seniority level, location, and the recruitment process itself

2. What makes up cost per hire?

Two broad buckets:

Internal costs: recruiter salaries, recruitment training, interviewing time, internal systems, referral bonuses
External costs: job advertising, agency and search firm fees, candidate travel and lodging, background screening, recruitment events

3. How does time-to-fill relate to cost per hire?

Time-to-fill shows roughly how long it’ll take to replace a departing employee. It helps with planning and flags when the hiring process is dragging on longer than it should.

4. How does turnover affect cost per hire?

Turnover can be expensive, replacing an employee can cost anywhere from half to twice their salary. High turnover and high CPH tend to move together: more turnover means more frequent hiring, which drives up spending on job postings, recruitment events, and the process overall. Each new hire also requires fresh investment in training and onboarding, which becomes a recurring cost when turnover stays high.