Cost per Hire: The Formula, a Worked Example and What to Include

Cost per hire is the total of your internal and external recruiting costs in a period divided by the number of hires in that period. Internal costs include recruiter time and referral bonuses, and external costs include advertising, agency fees, assessments and checks. Count the same things every time to compare fairly.

The formula

Cost per hire equals (total internal costs plus total external costs) divided by the number of hires. Use one period, such as a quarter or a year, and count only hires that started or were accepted in that period, according to a rule you define and keep. Cost per hire can be calculated for the whole company, for a department, for a role type or for a single role. The more narrowly you define the group, the more useful the answer, because an engineer and a warehouse operative have very different costs. Keep a short written definition of what you include so the next person calculating it gets the same result.

What to include: external costs

External costs are the amounts paid to outside parties. They include job board and advertising fees, social media advertising, recruitment agency or search firm fees, applicant tracking and recruiting software costs for the period (or a share of them), assessment or testing fees, background check and reference check fees, candidate travel and accommodation, relocation payments where you make them, recruitment event costs and employer branding spend tied to hiring. Include invoices you can trace. If a tool is used for more than hiring, include only the share used for recruiting, and say how you worked it out.

What to include: internal costs

Internal costs are the cost of your own people and resources. They include the time of recruiters and coordinators, the time hiring managers and interviewers spend screening, interviewing and deciding, referral or sign-on bonuses where they are part of the hiring cost, and a share of overheads attributable to recruiting. Time is the hardest to measure, and it is often the largest. A simple approach: estimate hours spent per hire, multiply by an hourly cost, and label the figure as an estimate. Do not pretend it is exact. Some teams exclude manager time to keep the figure simple. That is fine if you do it consistently and say so.

A worked example

This is an illustration only, with made-up numbers. A company makes 10 hires in a quarter. External costs: job advertising 3,000, agency fees 9,000, assessments 1,000, background checks 1,500, candidate travel 500, software share 2,000, total 17,000. Internal costs: recruiter time 6,000 (based on an estimated number of hours at an hourly cost), interviewer time 4,000, referral bonuses 1,000, total 11,000. Combined cost: 17,000 plus 11,000 equals 28,000. Cost per hire: 28,000 divided by 10 equals 2,800. Now look inside the figure. The agency fees account for a large share, and they apply to only some hires. Splitting by role or source would show that agency hires cost much more per head than direct hires, which is a more useful finding than the average.

Common mistakes

Leaving out internal time and then comparing your figure with one that includes it. Counting costs from one period against hires from another, so that a slow quarter looks expensive. Mixing hires of different kinds into one average. Treating a very low cost per hire as always good: cheap hiring that produces poor hires or high early turnover is not cheap. Using someone else's benchmark without knowing what it includes. Published figures vary by country, industry and method, and they do not tell you what your own cost should be. Ignoring costs of vacancy, which this metric does not measure. Forgetting to define what a hire is, for example at offer acceptance or at start date.

How to use the figure

Use cost per hire to compare channels, roles and quarters inside your own company. Pair it with time to hire, offer acceptance rate and a measure of quality, such as new hire retention or manager satisfaction after a set period. A cost that falls while quality also falls is a bad sign. Look for the biggest lever: if agency fees dominate, ask whether better direct sourcing or a referral programme could replace some of them. If advertising is high but few hires come from it, move spend to channels that produce hires. If interviewer time is high, ask whether you have too many stages. Report the trend with a short note of what changed, not just the number. When you present it to leaders, give a range of readings. Show the all-in figure, the figure without internal time, and the figure by channel, so people can see what drives the average. Explain that a lower figure is not automatically better and that you will watch quality at the same time. Tie any proposed change to a number you can check later, such as shifting a share of agency spend to direct sourcing and tracking the cost of those hires over the next two quarters.

Ways to lower it without hurting quality

Fix the process before cutting spend: fewer interview stages, clearer must-haves, faster decisions and structured scoring reduce wasted time and failed hires. Build a pipeline of past candidates and runners-up so that you can fill some roles without paying again to advertise. Use employee referrals where fair and legal, and make sure referral rules do not exclude people unfairly. Negotiate agency terms or limit agency use to hard-to-fill roles. Reduce early turnover, which forces a rehire and doubles the cost. Avoid cutting background checks or assessments that protect against costly bad hires. Rules on what checks you may run differ by country, so check local requirements.

Keep the data clean

Set up a simple sheet or report with a line for each cost, the date, the role and the source. Record each hire with the date and the channel. Review it quarterly. Agree who owns the figures and who may change the definitions. If you work across countries, record the currency and the exchange rate rule you apply, so that figures are comparable. To make the figure trustworthy, build a small cost log. Each line should have the date, the amount, the supplier, the role it relates to and the source of the hire if known. Ask finance to tag recruiting invoices with a code so that you can pull them quickly. For time, agree a standard hourly cost for recruiters and managers with finance, and agree how you will estimate hours, for example a fixed number of hours per interview round. Review the log at the end of each quarter, remove anything that does not belong, and note changes in the definition so that earlier quarters can be restated if necessary. When you present the figure, show the split between internal and external costs and between sources, and add a short comment on what changed. If you hire in more than one country, report each in local currency and say how you convert. Resist the urge to compare with other companies unless you know exactly how they count.

In Rezumz

In Rezumz, the job workspace and candidate records show where each candidate came from, when they moved through stages and what happened at the offer, which helps you count hires by source and role. Rezumz does not hold your invoices or payroll, so cost data stays in your own finance records. Use Rezumz for the hiring side of the formula and your finance team for the costs.