What is Cost Per Hire?
Cost per hire is the average recruiting expense incurred for each employee hired during a defined period. It combines internal and external recruiting costs, then divides that total by the number of hires. Employers use it to evaluate recruiting expenditure and plan hiring budgets.
For recruitment agencies, the client’s cost per hire and the agency’s cost per placement measure different sides of the same assignment.
How to calculate cost per hire
Cost per hire = (Internal recruiting costs + External recruiting costs) ÷ Total number of hires
Use the same reporting period for costs and hires. For example, a quarterly calculation should include the recruiting expenses and hires recorded under the organization’s reporting policy for that quarter.
The ANSI/SHRM Cost-per-Hire Standard provides a framework for defining the expenses included in this calculation. Document your chosen categories so the team can compare results consistently.
Internal recruiting costs
Internal costs reflect the resources an organization commits to recruiting. Depending on the reporting method, these can include:
- Recruiting staff salaries and benefits allocated to hiring.
- Hiring manager and interviewer time.
- Internal recruiting administration.
- Allocated recruiting systems and infrastructure costs.
External recruiting costs
External costs cover spending on outside recruiting services and resources, such as:
- Recruitment agency and executive-search fees.
- Job advertising.
- Candidate sourcing services.
- Pre-employment screening.
- Candidate travel associated with recruitment.
Allocate shared expenses consistently and count each expense once. Keep the new employee’s ongoing salary and post-hire training outside the recruiting calculation, as specified in the ANSI/SHRM standard.
Cost per hire example
An employer records the following expenses and hiring outcomes during one quarter:
| Item | Amount |
|---|---|
| Internal recruiting costs | $18,000 |
| External recruiting costs | $12,000 |
| Total recruiting costs | $30,000 |
| Employees hired | 6 |
| Cost per hire | $5,000 |
The calculation is:
($18,000 + $12,000) ÷ 6 = $5,000 per hire
These figures illustrate the formula. They are not an industry benchmark.
The figure becomes more useful when the employer separates comparable hiring groups. Combining a retained chief executive search with several repeat administrative hires can hide substantial differences in delivery effort.
Cost per hire versus cost per placement
An employer measures what it spends to recruit employees. An agency measures what it spends to deliver placements.
| Measure | What it measures | Primary perspective |
|---|---|---|
| Cost per hire | Average recruiting expense for each employee hired | Employer |
| Cost per placement | Average agency delivery expense for each placement | Recruitment agency |
| Placement fee | The amount charged for recruiting services | Agency and client |
The same placement fee is revenue for the agency and an external recruiting expense for the client.
An agency calculating cost per placement should define its own delivery costs, including recruiter time, researcher time, advertising, and allocated technology expenses. Dividing placement revenue by the number of placements calculates average revenue per placement, not delivery cost.
For retained searches, document how fee installments and delivery expenses are assigned to reporting periods. Cash received, revenue recognized, and recruiting work completed can occur at different times.
Why cost per hire matters
Cost per hire helps teams assess recruiting expenditure, compare hiring approaches, and identify repeated work.
For an agency advising a client, it can frame a more useful discussion about the total expense of filling a role. The agency fee is one component. Internal interviews, advertising, and sourcing effort can contribute to the client’s total.
For the agency’s own operations, the related cost-per-placement calculation can reveal assignments that consume substantial effort relative to the fees earned.
Read cost measures alongside time to fill and quality of hire. A smaller recruiting bill does not establish that the hiring process improved.
How to interpret the result
Before comparing two figures, check four things:
- Role mix: Compare similar levels, specialties, and hiring models.
- Cost coverage: Confirm that both calculations include comparable expense categories.
- Hire definition: State whether hires are counted at acceptance, start date, or another documented event.
- Reporting period: Use a period that reflects the recruiting cycle and explain how shared costs are allocated.
A specialist search may require more research and assessment than a repeat assignment. A higher cost can reflect that work rather than inefficient delivery.
A falling cost can reflect a useful process improvement. It can reflect omitted expenses or reduced assessment too. Use recruitment analytics to examine those changes and review the underlying records before drawing a conclusion.
Common cost per hire mistakes
Counting expenses twice
A technology subscription might appear in a recruiting budget and a shared overhead allocation. Assign it once using a documented method.
Ignoring unsuccessful recruiting work
Unfilled assignments still consume resources. State whether the report includes all recruiting expenditure or a narrower set of completed assignments.
Comparing different hiring events
A report counting accepted offers cannot be compared directly with one counting employee starts. Label the event and keep it consistent.
Treating lower cost as the goal on its own
Reducing sourcing, assessment, or candidate communication can lower expenditure without producing better hiring outcomes. Pair cost measures with delivery and quality measures.
Questions recruiters ask
Does cost per hire include the new employee’s salary?
No. The new employee’s ongoing salary falls outside this recruiting calculation. Recruiting staff time allocated to hiring is a separate cost.
Does cost per hire include recruitment agency fees?
Yes. Third-party recruiting fees are external recruiting expenses for the employer. Those same fees are revenue for the agency.
What is a good cost per hire?
There is no single figure suitable for every organization or role. Start with a consistent internal baseline, then compare similar hiring groups using the same expense categories and hire definition.
What happens if there are no hires during the period?
Report recruiting expenditure and zero hires separately. Division by zero does not produce a meaningful cost per hire. A longer reporting period may better reflect an extended search cycle.
Recruitment