Cost per Hire: How to Calculate It and What to Include

Cost per hire is the total cost of recruiting divided by the number of hires in the same period. Add internal costs, such as recruiter and interviewer time and software, to external costs, such as advertising, agency fees, assessments and checks, then divide by the hires made. Decide in advance what you count, apply it the same way every time and read the number alongside quality and retention. A low cost per hire is good only if the people you hire do well and stay. The figure is most useful for comparing sources and tracking your own trend, not for comparing yourself to an industry average with a different definition.

The formula is simple, but deciding what goes into it is the hard part.

The formula

Cost per hire = (internal costs + external costs) / number of hires

Use the same period for costs and hires, such as a quarter or a year.

What to include

Time is the biggest hidden cost. Estimating interviewer and hiring manager hours is imperfect but worth doing, since a team of five interviewing eight candidates spends many hours. Use a rough hourly cost and a consistent method.

A worked example

A company hires 10 people in a quarter. Costs for the quarter:

Cost per hire = 53,000 / 10 = 5,300.

These figures are invented, but they show how a high agency fee on two hires can account for a third of the cost. Splitting by source gives a clearer picture.

Cost by source

Breaking the figure down is more useful than the average.

You still need to look at quality. If agency hires stay longer and ramp faster, the higher cost may be justified. If not, shift effort to cheaper sources. See candidate sourcing and where to post jobs.

What the number does not show

• Quality of the hire.
• How long the role stayed open and what that cost the business. See time to fill vs time to hire.
• The experience of candidates who were not hired.
• The cost of a bad hire, which can be large.

Pair it with other measures. See recruiting metrics.

Ways to reduce cost without hurting quality

1. Improve screening efficiency, so recruiter time per hire falls. See high-volume resume screening.
2. Use structured interviews, so fewer rounds are needed for a clear decision. See structured interviews.
3. Build referral and talent pipeline routes.
4. Write clear job descriptions to attract better-matched applicants. See job description writing.
5. Reduce no-shows and delays. See interview no-shows.
6. Use technology where it removes repetitive work.

Be careful with cuts that reduce reach or candidate experience.

Tools and cost

Screening software changes the cost mix: a subscription replaces some manual time. The saving depends on volume. For a role with a handful of applicants, a spreadsheet is cheaper. For hundreds of applicants, manual screening time adds up. See spreadsheet vs ATS and free vs paid screening tools for how to compare. Resume World has a free plan; see pricing for current plans.

Reporting it

Share cost per hire quarterly with context: by source, by role type and with the change from the previous period. Avoid comparing to external benchmarks unless you know how they were calculated, since definitions vary a lot.

A practical routine

Once a quarter, gather the invoices and the hours, and write the total on one page. List each hire with its source and the cost you can attribute to it. Add a column for whether the person was still in the role at six months, and another for the manager's view of how they are doing. After a year you will have enough rows to see which sources and processes produce hires worth their cost. Until then, treat each figure as a pointer to look closer, not as a verdict.