Understanding Cost Per Hire
In today’s talent-driven market, understanding cost per hire (CPH) is no longer optional—it’s mission critical. For HR professionals and recruitment leaders, it’s a recruiting metric that reflects more than just spend. It shines a spotlight on hiring process efficiency, talent quality, and areas to unlock better ROI.
If your goal is to streamline your recruiting costs and attract top talent without breaking the bank, then this guide is your go-to. We’re diving deep into what CPH means, how to calculate the cost, and the strategic steps you can take to reduce it—without sacrificing the candidate experience.
What Is Cost Per Hire?
Cost per hire is the standard formula organizations use to determine the total cost associated with hiring one new employee. It includes all internal and external costs tied to the recruitment process, offering a comprehensive view of investment per new hire.
Formula:
Cost per Hire = Total Recruitment Cost / Total Number of Hires
It’s a cost-per-hire metric every hiring manager should know by heart.
Let’s break it down:
- Internal Costs: Recruiter salaries, training, hr technology, tools, and applicant tracking system usage.
- External Costs: Job board fees, agency fees, background checks, relocation expenses, external recruitment agencies, and marketing spend.
Together, these make up your total recruitment costs.
Components of CPH: What’s Included?
Here’s what costs include when calculating your CPH:
1. Internal Recruiting Costs
These refer to internal costs like recruiter time, hr team salaries, and tracking system operations.
2. External Recruiting Costs
These encompass external costs like external recruitment campaigns, recruitment agencies, travel expenses, and video interviews. Remember, your recruiting costs include both tangible expenses and less-visible ones like the time spent interviewing or the resources management systems in place.
Industry Benchmarks: What’s the Average Cost Per Hire?
Benchmarks vary by company size, industry, and location, but here’s a snapshot of average CPH:
- Small Businesses: ~$3,500–$4,000 per hire
- Mid-Sized Firms: ~$4,500–$5,500 per hire
- Enterprises: $6,000–$8,000 per hire
Why the range? Because costs to consider differ based on your talent management model, hiring volume, and tech stack.
What Factors Impact Your CPH?
Let’s look at some CPH influencers:
- Hiring Process Complexity: A lengthy hiring process increases the cost to hire.
- Role Type: Specialized roles usually involve higher external recruiting costs.
- Location: Urban centers tend to rack up higher recruitment expenses and external recruiting charges.
- Number of Hires: The total number of roles filled affects how your average cost per hire is spread.
Don’t forget: You also need to factor in recruitment costs from different business units and departments.
How to Calculate Cost Per Hire (Step-by-Step)
Here's how to nail your calculation:
- Add Internal Costs
Include recruiter salaries, human resource management systems, and office space allocations. - Add External Costs
Include external recruitment costs, job board fees, agency fees, and outsourced service spend. - Divide by Number of Hires
Let’s say your total recruiting costs were $80,000 and your number of hires was 20. Your cost per hire is:
$80,000 ÷ 20 = $4,000 per hire
Use this per hire formula to track progress and set realistic budgets.
Optimization Tips: Lower Your Cost Per Hire Without Losing Quality
Reducing your cost per hire doesn’t mean compromising on quality of hire. It means working smarter, not harder.
1. Leverage Tech Stack
Modern hr technology powered by artificial intelligence can automate and accelerate sourcing. An applicant tracking system (ATS) can help streamline workflows, saving significant time and resources.
2. Boost Your Employer Brand
A strong brand reduces dependency on paid ads and external recruitment support. Use social media and career pages to connect with top talent authentically.
3. Enhance Referral Programs
An employee referral is one of the most cost-effective ways to find new hires. It usually improves both employee experience and retention.
4. Use Data to Optimize Your Recruitment
Tracking the hiring process reveals opportunities to optimize. Focus on high-performing job board channels and refine your recruiting metric dashboards. You can also experiment with AI to predict time to hire, adjust sourcing funnels, and personalize outreach.
Real-World Example: Let’s Calculate the Cost
Your company hired 30 new employees in Q1. You invested $90,000 in internal recruiting, $60,000 in external recruiting, and spent $10,000 on relocation expenses.
Total Recruiting Costs:
Internal: $90,000
External: $60,000
Relocation + Misc: $10,000
Total: $160,000
CPH = $160,000 ÷ 30 = $5,333.33 per hire
This hire formula lets you spot high-cost segments and take action.
Future-Proofing: What’s Next for CPH Optimization?
Looking ahead, here’s what will reshape your cost-per-hire metric:
- AI & Automation: Artificial intelligence tools will shrink manual workloads.
- Remote Work Expansion: Hiring remotely reduces travel expenses and opens doors to talent without relocation expenses.
- Advanced Analytics: Predictive dashboards will help optimize your recruitment strategy and forecast future spend.
To truly reduce CPH, you’ll need to start thinking beyond transactions and adopt holistic resource management approaches.
Why It All Matters
Your cost per hire tells a bigger story than just dollars and cents. It reflects your company’s recruiting maturity, tech adoption, and alignment between your hr professionals, talent acquisition team, and business goals. Whether you're scaling quickly or filling niche roles, keeping tabs on your CPH helps you find the right people faster and smarter.
Ready to optimize your cost per hire?
At GoPerfect, our AI-driven solutions can include real-time metrics, sourcing automation, and candidate matching that drives value. Explore how our tools can help you hire a new generation of high performers—faster and smarter.
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