Cost per Hire
Cost per hire is the average total amount a company spends to recruit one new employee, adding internal and external recruitment costs and dividing them by the number of hires in the period.
Definition
Cost per hire adds up everything you spend on recruiting and divides it by the number of people hired. External costs include job board fees, agency fees, advertising, assessment tools and background checks. Internal costs include the recruiters' time, the time managers spend interviewing, referral bonuses and relocation or onboarding costs when you choose to count them.
The usual formula is: (internal costs + external costs) divided by the number of hires over the same period. The hard part is deciding what to include, so write the rules down and keep them identical from one period to the next. Otherwise the figure cannot be compared over time or between teams.
The metric helps you decide where to spend your recruiting budget and compare channels, such as agencies, job boards and referrals. Its main pitfall is optimising it alone: the cheapest hire is not the best one if the person leaves after six months. Read it together with quality of hire and time to hire.
Key points
- Formula: (internal costs + external costs) divided by the number of hires in the same period.
- Decide once which costs you count and keep the same rules every period.
- Split it by role and by channel: an average hides large differences.
- Cheap is not always good: pair it with quality of hire and retention.
- Internal time is a real cost, even when it does not appear in an invoice.
Example
Over a quarter, a company spends 6,000 on job boards, 9,000 in agency fees and estimates 15,000 of internal recruiter and manager time, for 30,000 in total. It makes 10 hires. The cost per hire is 3,000. Splitting the figure by channel shows where each hire costs the most.
Frequently asked questions
What costs are included in cost per hire?
External costs such as job boards, agencies, advertising and assessments, plus internal costs such as the time of recruiters and managers. Some companies also add referral bonuses, relocation and onboarding. What matters is applying the same definition each period.
Is a low cost per hire always good?
No. A low figure can mean you are not investing enough in attracting or evaluating candidates, which may lead to poor hires and early departures. Always read it next to quality of hire.
How can I lower cost per hire?
Develop channels that cost less per hire, such as referrals and a talent pool, reduce the time recruiters spend on repetitive tasks, and avoid restarting searches by evaluating candidates well the first time.
Related terms
AI conversations, human decisions
Passisto holds structured voice conversations with candidates, employees, clients and students, and turns them into reports your team can act on.