Cost Per Hire: How to Calculate It Properly and What It Actually Tells You

Cost per hire is one of the most quoted numbers in recruiting, and one of the most often miscalculated. Many companies only count what they pay for ads and agencies, and leave out the internal costs that make up much of the real bill. This guide explains how to calculate cost per hire properly, what to include, how to use the number to make better sourcing decisions, and how to reduce it without lowering the quality of who you hire.

The basic formula

Cost per hire is the total cost of recruiting over a period, divided by the number of hires made in that period.

• Cost per hire = (internal recruiting costs + external recruiting costs) ÷ number of hires
• Use the same time period for both costs and hires, such as a quarter or a year
• Calculate it per role type or channel as well as overall, since an average hides big differences

External costs

External costs are the easiest to find, because they come with an invoice.

• Job board fees and paid advertising
• Recruitment agency fees, typically 15–25% of annual salary per hire
• Sourcing tools, assessment tools and other recruiting software
• Background checks, tests and medical or drug screening where required
• Travel, relocation and sign-on payments
• Recruitment events, employer branding campaigns and referral bonuses

Internal costs

Internal costs are the ones companies most often forget, and they are often larger than the external ones. Every hour a recruiter, hiring manager or interviewer spends on a hire has a cost.

• Recruiters' salaries and overheads, allocated to the hires they worked on
• Hiring managers' and interviewers' time
• HR and payroll administration linked to hiring
• Onboarding and training set-up cost, where you choose to include it
• Any internal tools or systems, allocated across hires

A worked, illustrative example

Say that in a quarter you spend a set amount on ads, a set amount on an agency for one senior hire, and your recruiters and managers spend a certain number of hours on hiring, which you convert to a cost using their hourly rates. You add these together and divide by the number of hires that quarter. The figures in your case will differ, but the steps are always the same: list every cost, convert time to money, sum, and divide.

The exercise usually reveals two things. Internal time is a large share of the total, and the cost per hire varies a lot between channels and roles.

How it compares to benchmarks

The Society for Human Resource Management (SHRM) has reported an average cost per hire of about US$4,700 in the United States (2022). Treat any benchmark with care. Costs vary enormously by role level, industry, country and hiring volume, and different studies count different things. Your own number over time is more useful than a headline average.

Cost per hire by channel

The overall number is a start, but the real value comes from breaking it down by channel. If you know what each source costs and how many hires it produces, you can move budget to what works.

• Job boards: cost per posting divided by hires from that source
• Agencies: fee per hire, plus the internal time spent managing them
• Social media campaigns: ad spend and set-up divided by hires that came from them
• Referrals: bonuses divided by referral hires, usually low
• Direct outreach: recruiter time and tools divided by hires from outreach

Cost per hire is not the whole story

A low cost per hire is not automatically good. A cheap hire who leaves after two months is expensive. Use cost per hire alongside other measures.

• Time to hire: the longer a role stays open, the more it costs in lost output
• Cost per qualified candidate: shows how efficient your top of funnel is
• Quality of hire: performance and retention of those you hire
• Early attrition: how many leave in the first months
• Vacancy cost: what an open role costs you per week

How to reduce cost per hire

There is rarely one big lever. Most reductions come from removing waste.

• Reach candidates more efficiently, especially passive ones, instead of paying repeatedly for the same limited pool
• Automate screening, so recruiters do not spend hours on people who do not fit
• Reuse ads, landing pages and data across campaigns
• Build a talent pool, so you do not start from zero for every role
• Increase referrals, which tend to be cheap and high quality
• Reduce time to hire, so roles stay open for shorter periods
• Track cost by channel and stop spending where it does not produce hires

Common mistakes

• Leaving out internal costs, which gives a number that is far too low
• Mixing time periods for costs and hires
• Using one average for all roles
• Ignoring quality and retention
• Comparing yourself to a benchmark that counts different things
• Calculating once a year instead of tracking it regularly

Using the number to make decisions

Once you know cost per hire by channel and role, you can make choices on evidence. Should you use an agency for this role, or build your own pipeline? Which campaign should get more budget? Is it worth investing in a tool that reduces recruiter time? The number turns those questions from opinion into arithmetic.

How often to calculate it

Calculating cost per hire once a year hides what is happening. Track it quarterly at minimum, and monthly if you hire at volume. Break it down by role type and channel, and look at the trend rather than a single figure. A rising cost per hire is an early signal that a channel is saturating, that time to hire is lengthening or that competition for your roles is increasing.

• Keep a simple record of every hire: role, source, dates and costs
• Log recruiter and manager hours, even roughly, so internal cost is included
• Review the numbers with hiring managers, so they see what delays cost
• Set a target for cost per hire by role, and revisit it each quarter

How SmartHire helps

SmartHire lowers the cost of the top of the funnel. Our campaigns on Meta, Instagram, TikTok and Snapchat reach passive candidates, and AI filtering means your recruiters only see those who fit, which cuts both ad waste and screening time. Because you own the pipeline, cost per hire tends to fall as you reuse ads, landing pages and data. The first filtered candidates typically arrive within 3–5 days.

What is cost per hire?

Cost per hire is the total cost of recruiting in a period, both internal and external, divided by the number of hires made in that period.

What should I include in cost per hire?

Include external costs such as advertising, agency fees, tools and checks, and internal costs such as recruiters' and managers' time. Leaving out internal costs is the most common mistake.

What is a good cost per hire?

It depends on role, industry and country. SHRM has reported an average of about US$4,700 in the United States (2022), but your own trend over time, broken down by role and channel, is more useful than an average.

Is a lower cost per hire always better?

No. A cheap hire who leaves quickly is expensive. Look at cost per hire together with quality of hire, early attrition and time to hire.

How can I reduce cost per hire?

Reach candidates more efficiently, automate screening, reuse ads and pages, build a talent pool, increase referrals and shorten time to hire. Track cost by channel and stop spending where it does not produce hires.