How Do You Calculate Cost Per Hire

Calculate your organization’s cost per hire with this comprehensive tool

Understanding your cost per hire (CPH) is essential for optimizing your recruitment process and controlling hiring expenses. This comprehensive guide will walk you through everything you need to know about calculating and interpreting cost per hire metrics.

What Is Cost Per Hire?

Cost per hire is a key recruitment metric that measures the average amount of money spent to fill a single position in your organization. It includes all internal and external costs associated with the hiring process, from sourcing candidates to onboarding new employees.

The Society for Human Resource Management (SHRM) defines cost per hire as:

“The total cost associated with filling a vacancy, divided by the total number of hires made during a specific period.”

Why Cost Per Hire Matters

Tracking cost per hire provides several important benefits:

• Budget optimization: Helps allocate recruitment resources more effectively
• Process improvement: Identifies areas where hiring costs can be reduced
• Benchmarking: Allows comparison with industry standards
• ROI measurement: Evaluates the return on investment for recruitment activities
• Strategic planning: Informs workforce planning and hiring strategies

The Cost Per Hire Formula

The standard formula for calculating cost per hire is:

Cost Per Hire = (Internal Costs + External Costs) / Total Number of Hires

Internal Recruiting Costs

These are costs incurred within your organization:

• Recruiter salaries and benefits
• HR staff time spent on hiring
• Referral bonuses for employees
• Internal job postings and communications
• Hiring manager time spent interviewing
• Onboarding and training costs

External Recruiting Costs

These are costs paid to outside vendors and services:

• Agency fees and headhunter commissions
• Job board postings and advertisements
• Background check services
• Assessment tools and pre-employment testing
• Recruiting technology and ATS fees
• Travel and relocation expenses
• Career fair participation and campus recruiting

Step-by-Step Guide to Calculating Cost Per Hire

Step 1: Determine Your Time Period

Decide whether you’ll calculate cost per hire for:

• An individual hire
• A specific department or team
• A particular time period (quarter, year)
• Your entire organization

Step 2: Identify All Recruiting Costs

Create a comprehensive list of all expenses associated with hiring. Be thorough—many organizations underestimate their true hiring costs by missing certain expenses.

Step 3: Categorize Costs

Organize your costs into internal and external categories as described above. This will help with analysis later.

Step 4: Calculate Total Costs

Add up all your internal and external costs separately, then combine them for your total recruiting expenditure.

Step 5: Count Your Hires

Determine how many hires were made during your selected time period. Include all full-time, part-time, and temporary hires if relevant to your calculation.

Step 6: Apply the Formula

Divide your total costs by the number of hires to get your cost per hire.

Industry Benchmarks for Cost Per Hire

Cost per hire varies significantly by industry, company size, and position level. Here are some general benchmarks:

Industry	Average Cost Per Hire	Entry-Level Position	Mid-Level Position	Executive Position
Technology	$3,500	$2,200	$4,100	$14,500
Healthcare	$2,800	$1,800	$3,200	$11,200
Finance	$4,200	$2,500	$5,100	$18,700
Manufacturing	$2,100	$1,400	$2,500	$9,800
Retail	$1,500	$900	$1,800	$6,200

Source: SHRM Hiring Benchmarks Report

Common Mistakes in Calculating Cost Per Hire

Avoid these pitfalls when calculating your cost per hire:

1. Missing hidden costs: Forgetting to include expenses like hiring manager time or internal HR costs
2. Inconsistent time periods: Comparing different time frames without adjustment
3. Ignoring quality factors: Focusing only on cost without considering hire quality
4. Not segmenting data: Looking at overall numbers without breaking down by department or position level
5. Overlooking technology costs: Forgetting to include ATS, CRM, or other recruiting software expenses
6. Not accounting for turnover: Failing to consider costs associated with replacing employees who leave quickly

How to Reduce Your Cost Per Hire

Once you’ve calculated your cost per hire, you can implement strategies to reduce it:

1. Improve Your Employer Brand

A strong employer brand can reduce recruiting costs by:

• Attracting more qualified candidates organically
• Reducing time-to-fill positions
• Increasing employee referrals
• Lowering agency dependency

2. Leverage Employee Referrals

Referral programs typically yield:

• Higher quality candidates
• Faster hiring processes
• Lower turnover rates
• Reduced recruiting costs (typically 30-50% less than other sources)

3. Optimize Your Career Site

An effective career site should:

• Be mobile-friendly and easy to navigate
• Showcase your company culture
• Include employee testimonials
• Have clear job descriptions and application processes
• Integrate with your ATS for seamless applications

4. Use Data-Driven Recruiting

Analyze your recruiting data to:

• Identify your most effective sourcing channels
• Determine which job boards provide the best ROI
• Understand where candidates drop out of your process
• Measure time-to-fill and quality-of-hire metrics

5. Implement Recruiting Technology

Modern recruiting tools can help by:

• Automating repetitive tasks
• Improving candidate screening
• Enhancing collaboration among hiring teams
• Providing analytics and reporting
• Reducing time-to-hire

Cost Per Hire vs. Quality of Hire

While cost per hire is an important metric, it should be balanced with quality of hire considerations. A low cost per hire isn’t valuable if it results in:

• High turnover rates
• Poor performance
• Low employee engagement
• Negative impact on team productivity

Consider tracking these quality metrics alongside cost per hire:

Metric	Description	How to Measure
Performance Ratings	How new hires perform in their roles	Regular performance reviews (3, 6, 12 months)
Retention Rate	How long new hires stay with the company	Percentage still employed after 12, 24 months
Time to Productivity	How quickly new hires become fully productive	Manager assessments of productivity levels
Hiring Manager Satisfaction	How satisfied managers are with new hires	Post-hire surveys for hiring managers
Cultural Fit	How well new hires integrate with company culture	360-degree feedback and engagement surveys

Advanced Cost Per Hire Analysis

For deeper insights, consider these advanced approaches:

Segmented Analysis

Calculate cost per hire by:

• Department or team
• Job level (entry, mid, senior, executive)
• Location (geographic differences)
• Source of hire (job boards, referrals, agencies)
• Time period (quarterly, annual trends)

Lifetime Value Comparison

Compare cost per hire with:

• Employee lifetime value
• Revenue generated by the role
• Cost savings from improved performance
• Impact on team productivity

Predictive Modeling

Use historical data to:

• Forecast future hiring costs
• Identify cost drivers
• Model the impact of process changes
• Predict ROI for recruitment investments

Legal and Ethical Considerations

When tracking and analyzing hiring costs, be mindful of:

• Data privacy: Ensure compliance with GDPR, CCPA, and other data protection regulations when collecting and storing candidate information
• Non-discrimination: Avoid using cost metrics in ways that could lead to discriminatory hiring practices
• Transparency: Be open with candidates about how their data will be used
• Consistency: Apply the same cost tracking methods across all candidates to ensure fair comparisons

For more information on legal considerations in hiring, refer to the U.S. Equal Employment Opportunity Commission guidelines.

Tools and Resources for Tracking Cost Per Hire

Several tools can help you track and analyze your cost per hire:

• Applicant Tracking Systems (ATS): Most modern ATS platforms include recruiting analytics and cost tracking features
• HR Information Systems (HRIS): Comprehensive HR platforms often have recruitment cost modules
• Spreadsheet Templates: Custom Excel or Google Sheets templates for manual tracking
• Recruitment CRM: Candidate relationship management tools with analytics capabilities
• Survey Tools: For gathering hiring manager and candidate feedback

Case Study: Reducing Cost Per Hire by 40%

A mid-sized technology company implemented several changes to reduce their cost per hire:

1. Problem: Cost per hire was $5,200, significantly above industry average of $3,500
2. Actions Taken:
   • Implemented an employee referral program with tiered bonuses
   • Negotiated better rates with job boards and agencies
   • Redesigned career site with better SEO and candidate experience
   • Trained hiring managers on more efficient interviewing techniques
   • Implemented a recruiting CRM to better track candidate sources
3. Results:
   • Cost per hire reduced to $3,100 (40% decrease)
   • Time-to-fill reduced by 22%
   • Quality of hire metrics improved (retention up 15%)
   • Employee referral hires increased from 12% to 28%

Future Trends in Recruitment Costs

Several trends are likely to impact cost per hire in the coming years:

• AI and Automation: Increasing use of AI in screening and interviewing may reduce some costs while introducing new technology expenses
• Remote Work: The shift to remote work changes relocation costs and may expand talent pools, potentially reducing costs
• Skills-Based Hiring: Focus on skills over degrees may open new, more cost-effective talent sources
• Employer Branding: Investment in employer branding will become increasingly important for attracting talent cost-effectively
• Data Analytics: Advanced analytics will enable more precise cost tracking and optimization
• Diversity Initiatives: Expanded diversity hiring programs may introduce new costs but can improve long-term performance

For more insights on future hiring trends, see the Bureau of Labor Statistics employment projections.

Conclusion

Calculating and optimizing your cost per hire is an ongoing process that requires careful tracking, regular analysis, and continuous improvement. By understanding your current hiring costs, comparing them to industry benchmarks, and implementing strategic improvements, you can significantly reduce your recruitment expenses while maintaining or even improving the quality of your hires.

Remember that cost per hire is just one metric in your recruitment analytics toolkit. For the best results, combine it with other key metrics like time-to-fill, quality of hire, and retention rates to get a complete picture of your hiring effectiveness.

Use the calculator at the top of this page to regularly monitor your cost per hire, and refer back to this guide as you work to optimize your recruitment process.