Cost Per Hire:
Definition & Comparison

Cost Per Hire (CPH) is a recruiting metric that measures the total cost of bringing on a new employee, divided by the number of hires made in a given time period. This metric includes all expenses associated with recruiting, screening, and hiring a new employee, from advertising and recruitment fees to the time and resources spent by managers and employees on the recruitment process.

According to the Society for Human Resource Management (SHRM), the average cost per hire for U.S. companies is approximately $4,700. In the UK, the CIPD reports an average cost of £6,125 per hire. This metric helps HR assess where recruiting dollars are spent and identify opportunities to improve the hiring process or reduce costs without sacrificing quality.

Related terms: Recruiting Metrics, Talent Acquisition KPIs, Hiring Budget, Recruitment ROI

Cost per hire is calculated using a standardized formula developed by SHRM and the American National Standards Institute (ANSI) in 2012. The formula divides the sum of internal and external recruiting costs by the total number of hires made during a specific period.

To calculate cost per hire, follow these 4 steps:

1. Gather all cost data from your expenses report for a specified time period
2. Identify your internal costs including recruiter salaries, overhead, referral bonuses, and recruiting technology
3. Identify your external costs including job board fees, agency fees, advertising, background checks, and candidate travel expenses
4. Apply the formula: Cost Per Hire = (Internal Costs + External Costs) / Total Number of Hires

For example, if your company spent $300,000 on internal costs and $100,000 on external costs to hire 50 people, your cost per hire would be $8,000 per person ($400,000 ÷ 50 = $8,000).

Cost per hire includes both internal and external recruiting costs that encompass all sourcing, recruiting, and staffing expenses up to the point of hire. These expenses are categorized into two main groups.

Internal costs include:

• Recruiting staff salaries and benefits for in-house recruiters and HR professionals
• Recruiting department overhead including office space, utilities, and equipment
• Internal sourcing efforts such as employee referral bonuses
• Recruiter training and development expenses
• Hiring managers' time spent on recruiting activities
• Applicant tracking systems and recruiting software subscriptions

External costs include:

• Advertising and job marketing on job boards and social media
• Third-party agency or recruiter fees (typically 15-25% of the hire's salary)
• Candidate assessment and screening costs including background checks and drug tests
• Candidate travel and interview expenses
• Technology and recruiting software from external vendors
• Relocation and signing bonuses
• Off-site recruitment events and career fairs

Notably, cost per hire covers all recruitment costs to get an employee to day one and excludes post-hire costs like the new employee's salary, training after hire, or lost productivity during ramp-up.

Tracking cost per hire helps organizations optimize their recruiting process and make strategic decisions about resource allocation. This metric provides critical insights for budgeting, cost management, and measuring recruiter performance.

Cost per hire delivers 3 key business benefits:

• Budget forecasting by helping organizations understand what financial resources they need to hire in the next period and providing a clear indication of recruitment contribution to the bottom line
• Cost management by ensuring organizations get value for their money, as demonstrated by Nokia reducing their cost per hire by 74% through strategic platform selection
• Performance measurement by giving an indication of how recruiters are managing their resources, allowing organizations to assess the effectiveness of their recruitment strategy

Organizations use this metric to demonstrate value to leadership and show exactly how recruiting efforts impact the bottom line. When you understand what you're spending to bring new talent on board, you can make better decisions about where to invest your resources.

Cost per hire varies significantly based on multiple factors, and certain roles will always be more expensive to fill regardless of recruiting team efforts. Organizations must recognize these variations when benchmarking their performance.

The 6 primary factors that influence cost per hire are:

• Recruitment sources such as job boards, career fairs, and social media platforms
• Time required to fill a position, with longer recruitment processes being more expensive
• Company size, as larger organizations tend to have complex recruitment processes that require more resources
• Industry and the level of competition for top talent acquisition
• Role seniority and specialization, with executive and highly specialized positions costing more to fill
• Turnover rate and employee retention, as higher turnover leads to more frequent recruitment and higher costs

For instance, recruiting an entry-level graphic designer almost always costs less than a Chief Marketing Officer. Similarly, hiring for executive or highly specialized roles often results in a higher cost per hire due to the extensive search and longer timelines required.

Average cost per hire varies dramatically by industry, reflecting differences in talent competition, required skill sets, and typical hiring processes. According to SHRM research, the overall average cost per hire in the United States is approximately $4,700.

Industry benchmarks show significant variation, with some sectors spending considerably more than others to fill positions. Hard-to-fill roles and specialized positions typically command higher recruiting costs due to limited candidate pools and extended search timelines.

Organizations should compare their cost per hire against industry-specific benchmarks rather than using a single company-wide target. A cost per hire that appears high compared to the overall average may be acceptable and expected when recruiting for specialized roles such as actuarial scientists or senior technical positions.

Organizations can reduce cost per hire through strategic methods that streamline the hiring process while maintaining candidate quality. These approaches focus on efficiency improvements rather than cutting corners that might compromise hiring outcomes.

The 5 most effective strategies for reducing cost per hire are:

• Using AI and automation to handle routine tasks like resume screening, interview scheduling, and candidate engagement, freeing recruiters for high-value activities
• Improving employee referral programs, which save companies approximately $3,000 per new hire and result in employees who stay 70% longer
• Utilizing social media platforms for cost-effective job postings that reach wide audiences through targeted advertising options
• Automating recruitment processes through Applicant Tracking Systems that streamline everything from posting job ads to scheduling interviews
• Enhancing candidate relationship management to nurture a strong pipeline of engaged talent and rediscover great past applicants

As demonstrated by real-world examples, Ericsson reduced their cost per hire by 70% through social media and employee advocacy initiatives, while Nature's Pride achieved an approximate drop of $1,100 per hire by taking control of their internal recruitment process instead of relying on external agencies.

Building a strong employer brand acts as a recruiting magnet that reduces cost per hire by attracting qualified candidates organically. When you build a strong reputation as a great place to work, qualified candidates come to you, reducing how much you need to spend on outbound recruiting efforts.

Organizations strengthen their employer brand by identifying platforms where potential candidates spend time and creating content that showcases workplace culture through staff testimonials and employee-generated content. Recruitment marketing software can make this easier by helping create compelling career sites and personalized content campaigns.

Cost per hire is often compared to 3 related recruitment metrics:

Cost Per Hire vs. Cost Per Application

Cost per hire measures the complete financial investment to fill a position from job posting through hire, while cost per application measures only the resources required to attract a single job applicant. Your CPH will always be higher than your CPA because you're dividing total costs by a much lower number of actual hires rather than total applicants. Organizations use CPA to assess sourcing channel effectiveness and CPH to understand total recruitment investment.

Cost Per Hire vs. Time to Hire

Cost per hire quantifies the financial expenditure of recruitment while time to hire measures the duration of the hiring process from job posting to acceptance. These metrics are interconnected, as longer recruitment processes typically result in higher costs per hire. Organizations should analyze both metrics together, as reducing time to hire often leads to lower cost per hire through decreased productivity loss and reduced recruiter time investment.

Cost Per Hire vs. Quality of Hire

Cost per hire focuses solely on recruitment expenses while quality of hire assesses the value and performance of new employees after they join. A lower cost per hire is not always beneficial if it results in poor quality hires who underperform or leave quickly. Organizations must balance these metrics, as spending more per hire may be justified when it yields better quality hires with higher retention rates and stronger performance, ultimately providing better return on hiring investment.