Cost per hire can be used by companies to evaluate recruiters’ performance, decide on the best source of hire, and determine the budget and strategy for sourcing. 

Understanding and tracking your cost per hire can significantly improve your recruiting Return on Investment (ROI). In 2012, Cost per hire was jointly standardized by The Society for Human Resource Management (SHRM) and the American National Standards Institute (ANSI). The standard was designed to help organizations consistently measure and benchmark their recruitment costs. 

What is cost per hire?

Cost per hire refers to the average amount of money a company spends to hire a new employee. This important metric helps you effectively manage your recruiting budget and make informed decisions about your hiring strategies.

Cost per hire serves as:

• A performance indicator for evaluating the efficiency of your recruitment processes
• A budgeting tool for allocating resources to talent acquisition
• A comparative metric for benchmarking against industry standards
• A strategic input for making informed decisions about recruitment channels and approaches

Why 51% of Companies Track Cost per Hire?

Since 2023, SHRM reported a significant increase in the number of companies that regularly track their cost per hire metrics. This is for several reasons, starting with budget optimization due to changing economic conditions. Understanding costs of recruitment allows organizations to create more accurate hiring budgets and prevent cost overruns.

Quantifying recruitment costs helps companies understand and calculate ROI of different recruiting strategies, ultimately helping companies discover inefficiencies in their processes. 

Cost per hire allows companies to benchmark recruitment efficiency against industry standards and competitors, and enables data-driven decisions based on accurate cost data. 

How to Calculate Cost per Hire

To accurately calculate the Cost per Hire of your organization, you need to determine the internal and external costs associated with recruitment. To summarize, these are the steps to create Cost per Hire report: 

1. Define a Specific Timeframe: Determine the specific period for which you want to calculate the Cost per Hire.
2. Select the Appropriate Cost per Hire Type: Choose a Cost per Hire type that aligns with your organization’s needs.
3. Calculate Internal Costs: Assess the internal expenses associated with recruiting.
4. Calculate External Costs: Analyze the external costs incurred during the hiring proces

Cost per Hire Formula

The formula should consist of costs correlated to the same period, also known as CPHI. The formula is as follows:

Cost per Hire (CPH)=Total Number of Hires/Total Hiring Costs​

The Internal CPH metric measures the costs associated with the sourcing, recruiting, and staffing activities of an employer to fill an open position. CPH is a ratio of the total amount spent on the total number of hires in a specific period, meaning you shouldn’t include data on freelancers or outsourced workers. 

Different Types of Cost per Hire Metrics

The type of Cost per Hire metric you choose should align with your organization’s size and key performance indicators (KPIs). You can opt for one of three types: CPHI – Internal, CPHC  – Comparable, or Recruiting Cost Ratio (RCR). 

Cost per Hire Comparable Formula

If your company has multiple office locations, you can use Comparable Cost per Hire. CPHC is designed for cross-organizational comparisons, making it a valuable tool for benchmarking and assessing the efficiency of hiring processes on a broader scale. Unlike regular cost per hire metrics, CPHC maintains consistency by limiting internal costs to specific categories like recruiting staff expenses and learning development, ensuring fair comparisons across different organizations. Internal Costs are limited to: 

• Total Cost of Recruiting Staff Expenses
• Total Cost of Sourcing Staff
• Non-labor Office Costs
• Recruiting Learning and Development

The primary objective of CPHC is to enable organizations to gain valuable insights into how their hiring costs stack up against industry standards, competitors, or other departments within their own company. By utilizing CPHC, companies can make data-driven decisions to enhance their hiring strategies, allocate resources more effectively, and identify areas for improvement.

Recruiting Cost Ratio Formula

Usually, companies analyze the cost of hire by the number of hires for a specified period. But, if you want to analyze the costs of hire by the total compensation of hires for the period, you should use the Recruiting Cost Ratio. To calculate Recruiting Cost Ratio, use this formula: 

RCR = (Total Recruitment Costs / Total First-Year Compensation of Hires) x 100.

Unlike CPHI and CPHC, RCR provides results in percentages, allowing you to gauge the proportion of your organization’s expenses devoted to talent acquisition. For reference, you can conclude that for each $1, your organization spent 10 cents on talent acquisition.

What is included in CPH?

When calculating Cost per Hire, it’s essential to account for all relevant recruiting expenses. These expenses can be categorized as internal or external, as shown in the CPH formula. Creating a comprehensive list of potential recruiting expenses will help you build an accurate spending plan.

External Costs: Comprehensive Checklist

External costs include everything your company pays to external vendors or individuals for recruiting. Think about job boards, social media ads, recruitment agencies, background checks, and much more than this. External costs include all payments to vendors, services, and individuals outside your organization for recruitment purposes:

Advertising and Marketing

• Job board postings
• Social media advertising
• Print advertisements
• Career fair participation fees
• Employer branding campaigns

Third-Party Services

• Recruitment agency fees
• Executive search retainers
• Background check services
• Pre-employment assessments
• Drug testing services
• Immigration assistance

Candidate Experience

• Candidate travel expenses
• Accommodation for out-of-town interviews
• Meal expenses during interviews
• Relocation assistance packages
• Sign-on bonuses

Technology and Tools

• Applicant tracking system licenses
• Candidate relationship management tools
• AI-powered screening platforms
• Video interviewing software
• Technical assessment platforms
• LinkedIn Recruiter licenses and other sourcing tools

Other External Expenses

• Employee referral bonuses
• Pre-hire health screenings
• Recruitment process outsourcing (RPO) fees
• Consulting services (e.g., salary data)
• Campus recruiting expenses

For accurate CPH calculation, annual external costs should be prorated based on your selected measurement period. For example:

Recruitment Process Outsourcing Fee is $36,000 annually, and you’re researching six months. This cost would be calculated as $3,000 / 12 months x 6 = $18,000 for the 6 months.

Internal Costs

Internal costs cover all of the in-house resources supporting hiring. These expenses may include, but are not limited to:

Recruitment Team Costs

• Salaries and benefits of internal recruiters
• Compensation for sourcing specialists
• HR support staff dedicated to recruitment
• Recruitment operations personnel

Management Time

• Hours spent by hiring managers on candidate evaluation
• Interview time for all internal participants
• Résumé screening time
• Selection committee meetings
• Onboarding preparation

Infrastructure and Overhead

• Office space allocated to recruitment functions
• Equipment and supplies
• Utilities and telecommunications
• Internal recruitment events
• Recruitment-related travel expenses

Development and Training

• Recruiter training and certification
• Interview skills development for managers
• Recruitment compliance training
• Employer brand development workshops

To calculate the total internal costs, sum up expenses across all relevant categories:

Total Internal Costs = Recruitment Team Costs + Management Time + Infrastructure and Overhead + Development and Training

Total Internal Costs = Cost of Recruiting Staff Expenses + Cost of Sourcing Staff Expenses + Non-labor Office Costs + Recruiting Learning and Development

Industry Benchmarks: How Does Your Cost Per Hire Compare?

Understanding how your cost per hire compares to industry standards can provide valuable context for evaluating your recruitment efficiency. However, it’s important to consider multiple factors when benchmarking, including:

• Organization size and industry
• Geographic location
• Position level and complexity
• Labor market conditions
• Recruitment volume

Average Cost Per Hire in the United States

According to the most recent data from SHRM and other industry research, here’s the list of average CPH in the US:

There is not enough data on the Specialist Executive Roles (e.g. CTO, VP of Engineering, VP of Sales (tech), and the current data suggests much higher rates than average CPH for Executive roles across different industries.

Recent benchmarking also notes a modest increase: up from about $4,425 in 2021 to 2025 projections around $4,700-$4,800. These figures can vary significantly based on industry, with technology and healthcare typically showing higher costs due to competitive talent markets.

European Cost Per Hire Benchmarks

Industry-Specific Benchmarks

Industry-specific cost per hire averages reveal significant variations:

What is a “Good” Cost Per Hire?

Rather than focusing solely on minimizing CPH, organizations should aim for an optimal cost per hire that balances efficiency with quality. A “good” cost per hire:

1. Is trending downward over time while maintaining or improving quality of hire
2. Aligns with your organization’s strategic priorities and budget constraints
3. Is appropriate for the level and criticality of the positions being filled
4. Compares favorably to industry benchmarks when accounting for all relevant factors
5. Results in successful hires with strong performance and retention

4 Practical Strategies to Reduce Your Cost Per Hire

Optimizing your cost per hire doesn’t necessarily mean cutting corners, but for each of the following strategies your department should start tracking and benchmarking data. Consider these strategies to lower your recruitment expenses.

1. Optimizing sourcing channels

If CPH showed you some of the sourcing channels are high, you could consider diving deeper into a couple of key metrics such as sourcing channel effectiveness and sourcing channel costs. Refining sourcing approaches presents a long-term opportunity for organizations to conserve significant resources, although it requires considerable effort.

2. Improving Recruiter Efficiency 

Measure time-to-fill, candidate conversion rates, and recruiter workload. Investing in training, better tooling, and streamlined processes helps recruiters focus on high-impact tasks, reducing both time and cost per hire.

3. Leveraging Employee Referrals

Referrals often result in faster, more cost-effective, and higher-retention hires. Track referral program ROI and promote it internally—employees are typically your best talent scouts and brand ambassadors.

4. Technology and Automation Solutions

Adopt applicant tracking systems (ATS), and AI recruitment automation to reduce manual effort and improve scalability. These tools cut down on repetitive tasks, speed up hiring, and deliver better analytics for ongoing CPH optimization.

5. Strategic Use of Recruitment Agencies

While agencies typically charge 15-25% of annual salary, they can reduce overall CPH for specialized or hard-to-fill roles by accelerating time-to-hire and accessing passive talent pools. The key is strategic deployment, use agencies for critical positions where speed and specialized expertise justify the premium, while building internal capabilities for routine hiring. Calculate the true cost by factoring in reduced internal recruiting hours and faster productivity gains from quicker fills.

Frequently Asked Questions About Cost Per Hire

Q: How often should we calculate our cost per hire?

A: Most organizations benefit from quarterly CPH calculations, with annual comprehensive analyses. High-volume recruiters may prefer monthly tracking for more responsive adjustments.

Q: Should we include onboarding costs in our CPH calculation?

A: While the standard CPH formula focuses on recruitment costs up to the acceptance of an offer, some organizations include onboarding costs in an expanded “cost of acquisition” metric. The key is consistency in your approach.

Q: How do we account for recruiting team time when they handle multiple functions?

A: For team members with split responsibilities, track the percentage of time dedicated to recruitment activities and allocate their compensation accordingly. Time tracking tools or regular sampling can help establish accurate allocations.

Q: What’s more important—reducing cost per hire or improving quality of hire?

A: These objectives should not be viewed as mutually exclusive. The most effective approach is to optimize CPH while maintaining or enhancing quality, using metrics like performance ratings and retention to ensure cost reductions don’t compromise outcomes.

Q: How should we adjust our CPH benchmarks during talent shortages?

A: During tight labor markets, expect CPH to increase as competition intensifies. Adjust internal benchmarks to reflect market conditions, perhaps focusing more on relative metrics (e.g., your CPH compared to competitors) rather than absolute targets.

Q: Should different departments have different CPH targets?

A: Yes, CPH targets should vary based on position complexity, market competition, and strategic importance. Executive and highly specialized technical roles typically warrant higher CPH allowances than standardized or entry-level positions.