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Cost per Hire: Formula, Significance, and More

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December 23, 2022Recruitment

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There are many costs associated with bringing in a new employee. These costs can fluctuate based on whether you handle recruiting internally, rely on employee referrals, or have a recruiting agency sourcing talent for you. 

One thing’s for sure: If these costs start to outweigh the benefits of a new hire, your company's bottom line will suffer. 

Cost per hire (CPH) is a key recruiting metric that will help you measure these costs, so you can make better budgeting and recruiting decisions. 

Below, we'll discuss how to calculate cost per hire, what expenses are included, and the significance of this metric.

 

Cost per Hire Formula

To calculate cost per hire, add your recruiting costs and divide it by the total number of hires.

Cost per hire = (Internal costs + External costs) / Total number of new hires during a certain time period

 

Breaking Down Recruiting Costs

You'll notice that the formula provided in the section above lists both internal and external costs as variables. But what are those costs, exactly? 

In the next sections, we'll break down recruiting costs into internal and external expenses.

 

External Recruiting Costs

Some parts of the hiring process might take place outside of your business. These include, but are not limited to:

  • Travel expenses: If you pay for your hiring manager to travel to the candidate’s location (or if you pay for the employee to travel to you), this will impact the hiring costs. Relocation expenses could also fall into this category.
  • Technology expenses: Recruitment technology sometimes has a cost, such as purchasing and running an applicant tracking system or a system to process applications.
  • Sourcing expenses: This includes paying to be part of job databases or professional associations.
  • Background checks and pre-screening assessments: Pre-screening assessments can help confirm a candidate’s experience and knowledge. Similarly, a background check is an important safety measure that helps verify your candidate is who they say they are.
  • Signing bonuses: Many companies will offer a monetary perk to entice a great candidate to join the company.
  • Job and career fair costs: The fees and travel costs associated with recruiting events like job fairs (registration, booth space, marketing gadgets and collateral for guests, etc.) add to your total cost per hire.

Internal Recruiting Costs

Some costs come from within your organization. These can be part of the interviewing and onboarding process. They can also include the costs of keeping your recruitment team happy. Internal recruiting costs might include:

  • Training and development programs: Training for new employees can be expensive, particularly if your organization covers the costs of any required certifications. 
  • Referral bonuses: Do you have an employee referral program wherein you offer a bonus to existing employees for referring new employees? If so, these bonuses are an internal expense you'll need to account for. 
  • Hiring manager and recruitment staff costs: If you have internal recruiting staff, their salaries and benefits are part of your cost per hire.
  • Employer branding: If you need to do some branding to help make your company appealing to new hires, this is included in your recruitment costs. 

Example Cost per Hire Formula

Now that we have a solid idea of the variables that contribute to CPH, let's look at a real-world example. 

Imagine you are a tech firm that needs to hire five new software developers for the coming year. Your external costs may break down as follows:

  • Background checks and other pre-screening assessments: $3,500
  • Job board memberships: $350
  • Travel expenses: $4,000
  • Total external costs: $7,850

Next, calculate your internal costs. 

  • Paying the recruitment team: $5,000
  • Office equipment and technology (applicant tracking systems, automation software, etc.): $1,000
  • Compliance concerns: $600
  • Cost of sourcing resumes and applicants: $1,500
  • Total internal costs: $8,100 

Now that you've determined both of the variables needed, plug them into the CPH formula we covered above. 

Cost per hire = (Internal costs + External costs) / Total number of new hires during a certain time period

Cost per hire = ($7,850 + $8,100) / 5 new hires

Cost per hire = $3,190

 

What Is the Significance of the Cost per Hire?

Cost per hire can give you a good understanding of how much your organization spends to attract and secure candidates, which is key for recruitment budget planning. 

Measuring CPH also helps you quantify your new hires so you can get the most value out of your hiring strategy. It provides insights into how you allocate your resources, which makes it easier to identify opportunities to improve.

Cost per hire can provide plenty of valuable information about the ROI of your recruiting process. However, it doesn't account for the fact that the cost required to fill certain roles will vary based on factors like seniority, location, and company size.

While this recruiting metric is essential, it's important to note that it does fluctuate.

 Cost per hire isn't a set-it-and-forget-it KPI; you'll need to monitor it periodically (monthly or quarterly) to stay ahead of lofty, increasing, or hidden expenses.  

 

Key Cost per Hire Statistics to Know

  • The Society for Human Resource Management (SHRM) indicates the 2022 average cost per hire is nearly $4,700 across all industries.
  • The SHRM also reports that an executive cost per hire is $28,300.
  • According to the Association for Talent Development, it costs approximately $1,252 to train a new employee.
  • According to Glassdoor, the average recruiter's salary, including the base pay and bonuses, is around $70,000 a year, which adds to the cost per hire.

 

Does Cost per Hire Vary Depending on the Industry?

Yes, both the industry and the size of the business can impact the CPH. 

For example, an executive-level role in a major tech corporation with thousands of employees will likely have a much higher cost per hire than an entry-level role at a small marketing startup. 

However, while the cost per hire for the executive role may be higher, it may be justified and reasonable as the tech company most likely has a much bigger recruiting budget than the startup. 

When you're calculating cost per hire for your organization, it's important to consider the context. 

Industry benchmarks are a great place to start—but don't forget to consider the factors relevant to your company (like your number of employees and geographical location).

 

Hire Better Candidates With Hunt Club

If you calculate your cost per hire and find that your recruiting efforts are becoming expensive, it may be time to consider some outside help. Hunt Club can help you hire better candidates while streamlining your recruiting and hiring costs. 

Our team of experts optimizes your recruiting process by sourcing and vetting high-quality candidates from our deep professional network. Hunt Club helps you hire more effectively, freeing up your internal HR teams to focus on more pressing duties—and lowering your cost per hire in the process. 

Ready to get started? Contact our team today.

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Michelle Han-Taylor avatarMichelle Han-Taylor