Cost Per Hire
Cost per Hire (CPH) is a key HR metric. It shows the total cost of bringing in a new employee. This metric includes the average expense an organization faces to fill a job. It covers both internal and external recruitment costs. By looking at cost per hire, HR teams and business leaders can assess how well their recruitment strategies work. They can spot areas for improvement and use resources more wisely. This metric is common in workforce planning, compensation management, and organizational budgeting.
Understanding cost per hire is crucial. It helps control spending and aligns hiring with larger goals. Whether a company is growing, expanding abroad, or keeping workforce numbers steady, tracking CPH keeps recruitment efforts financially sound and efficient.
Why is Measuring Cost Per Hire Important?
Cost per hire (CPH) is a key financial tool. It shows how much, on average, it costs to bring in a new employee. This information helps HR leaders set realistic hiring budgets. It also allows them to measure the return on investment (ROI) for talent acquisition and compare hiring efficiency across time, departments, or locations.
For instance, if a company spends much more to hire engineers than sales professionals, CPH data can reveal if this difference makes sense. Factors like market conditions, role complexity, or process issues may explain the costs.
Additionally, CPH reflects how effective the recruitment process is. A high CPH can signal problems, like long hiring times, heavy reliance on costly recruitment agencies, or poor candidate matches that lead to early turnover. On the other hand, a low CPH may suggest an efficient hiring process but could also indicate a lack of investment in attracting top talent.
How to Calculate Cost per Hire
Cost per hire is calculated using a relatively straightforward formula:
CPH = (Total Internal Recruiting Costs + Total External Recruiting Costs) / Total Number of Hires
Internal recruiting costs refer to the expenses incurred within the organization to support recruitment efforts. These typically include salaries and benefits of in-house recruiters, hiring manager time spent interviewing candidates, infrastructure costs related to recruitment (e.g., use of an Applicant Tracking System (ATS)), and administrative support. Time spent on onboarding and training, if part of the hiring process, may also be factored in depending on how an organization defines the recruitment lifecycle.
External recruiting costs include expenses like agency fees, job board postings, background checks, advertising, relocation packages, travel reimbursements, and software from outside vendors.
For example, if a company spends $100,000 a year on internal and external recruitment and hires 25 employees, the average cost per hire is $4,000.
The formula is straightforward, but capturing all costs can be tricky. Companies should define what a "hire" means. They must also agree on the accounting method used to track these figures for consistency across departments and timeframes.
What’s Included in Cost per Hire?
A well-rounded CPH calculation typically includes:
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In-house recruiter and HR staff compensation attributed to recruitment
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Time hiring managers spend reviewing applications, interviewing, and following up
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Cost of pre-employment assessments, drug tests, and background checks
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Job board posting fees and social media advertising
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Headhunter or recruitment agency commissions
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Career fair participation costs
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Candidate travel and relocation reimbursements
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Technology infrastructure such as recruitment CRMs, ATS licenses, and interview platforms
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Onboarding materials and training (if included within the recruitment phase)
However, benefits like ongoing professional development or equipment provided after onboarding are typically not included in CPH. Those would fall under broader workforce or total compensation cost categories.
Why Cost per Hire Matters
Tracking cost per hire helps companies evaluate and compare the financial success of their recruitment efforts. This is crucial during times of economic uncertainty, workforce cuts, or rapid growth.
For instance, if hiring needs rise because of expansion into new markets, the organisation may see a higher CPH. However, by using internal referrals better, streamlining interviews, and enhancing onboarding, HR can maintain CPH within acceptable limits. Tracking these changes over time gives HR leaders useful insights to improve strategy and demonstrate value to executive leadership.
Cost per hire also has implications for recruitment process outsourcing (RPO), staffing vendor negotiations, and performance management of internal recruiters. It may influence decisions on whether to hire internally, use contractors or contingent workers, or invest in sourcing technologies like AI-enabled resume screeners.
Factors Influencing Cost per Hire
Several contextual variables can dramatically affect cost per hire:
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Job complexity and seniority: Specialized or executive roles often cost more to fill due to a smaller talent pool and longer sourcing times.
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Time to hire: Lengthy recruitment cycles mean more recruiter hours and advertising spend, raising the cost.
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Industry and competition: Competitive labor markets may require premium job advertising and higher recruiter commissions.
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Company location and size: Geographic cost variations and workforce scale can influence fixed vs. variable hiring costs.
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Turnover rates: High turnover inflates CPH because more positions must be refilled within shorter timeframes.
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Technology usage: Investing in automation tools like AI-driven screening or HRIS platforms may raise short-term costs but reduce CPH over time through improved process efficiency.
Understanding these variables helps companies not only interpret CPH data accurately but also build more realistic hiring budgets aligned with strategic workforce goals.
Benchmarking and Industry Standards
CPH varies by organization and industry. Industry reports often show that the U.S. national average cost per hire is about $4,000 to $5,000, based on SHRM benchmarks. This average can change a lot depending on the role. For example, entry-level retail hires may cost $1,000 or less. In contrast, senior-level technical positions might go over $10,000.
Using industry benchmarks helps HR departments see if their CPH is competitive. It can also highlight the need for process improvements. Benchmarking against peer organizations is especially helpful during mergers, restructuring, or geographic expansion.
Strategies to Optimize Cost per Hire
Organizations seeking to reduce or stabilize their CPH can adopt several strategies:
First, refining sourcing channels cuts unnecessary costs from external agencies. You can do this by reaching out directly to candidates, using social media better, encouraging employee referrals, and building internal talent pools.
Second, automation tools in applicant tracking and pre-screening reduce recruiters' time and enhance candidate filtering. They also help collect data for ongoing cost-per-hire (CPH) analysis.
Third, standardizing job descriptions, simplifying interview stages, and using structured onboarding programs lower both time and costs while maintaining a good candidate experience.
Most importantly, a data-driven hiring strategy keeps cost-saving measures from affecting quality.
Low CPH is only a positive metric when it’s coupled with strong employee retention, performance, and organizational fit.
Conclusion
Cost per Hire (CPH) is more than a number. It shows how well an organization recruits. By calculating and analyzing CPH, organizations can make smart hiring choices, support budget requests, and improve their talent acquisition methods. Although it is an important metric, CPH should be viewed alongside hiring outcomes like candidate quality, retention, and cultural fit.
In today’s job market, speed, cost, and quality must be balanced. Understanding CPH helps HR professionals become strategic partners, not just recruiters.
For definitions of key HR and employment terms, visit the Rivermate Glossary.