Extended definition
Cost per hire is the metric CFOs care about most and the one TA teams most often calculate inconsistently. The calculation is simple in principle — total recruiting cost divided by hires — but the question of what counts as recruiting cost is where most disagreement happens.
Strict definitions include only direct external spend; broad definitions include internal headcount, tooling, employer brand investment, referral bonuses, and onboarding setup. The right definition depends on the question being asked.
For comparing channels, narrower; for comparing internal versus agency models, broader; for board-level reporting, broadest. SHRM and the ANSI/SHRM Cost-Per-Hire Standard provide reference definitions; most companies adapt them to their own situation.
How to calculate cost per hire
The most cited formula:
Cost per hire = (Total internal recruiting costs + Total external recruiting costs) ÷ Total hires in period
- Internal costs typically include recruiter salaries (allocated by time), TA leadership, recruiting coordinator time, internal recruiting tooling (ATS, CRM, sourcing platforms), and a share of internal infrastructure.
- External costs typically include agency fees, job board spend, LinkedIn Recruiter seats, advertising, referral bonuses, careers site investment, employer brand campaigns, background checks, and assessment tools.
- Period and scope — Most companies calculate quarterly or annually. The standard SHRM definition uses a year. Calculations should specify whether they include all hires (including internal mobility) or only external hires.
- By channel and role family — Aggregate cost per hire is less useful than channel- or role-specific. Cost per hire from referrals is dramatically lower than from contingent agencies; engineering CPH usually exceeds customer service CPH. Channel- and role-level views drive actionable decisions.
SHRM’s average cost per hire in the US has historically sat around $4,700, but the figure varies significantly by industry, role seniority, and economic conditions. Recent years have shown wide variation as labour markets shifted. Internal benchmarking against the company’s own trend usually produces more useful insight than industry averages.
Why cost per hire matters
Cost per hire is the metric that sets recruiting’s unit economics. For VPs of TA, it’s the number that justifies (or doesn’t) investments in sourcing capability, tooling, and employer brand.
For CFOs, it’s the input to total recruiting spend forecasting and the variable that responds most directly to channel-mix changes. Reducing cost per hire while maintaining quality of hire is one of the few clear wins available in TA — channel optimisation, agency reduction, and stronger referral programs typically produce 20-40% reductions when run with discipline.
Common mistakes and misconceptions about cost per hire
- Including or excluding internal headcount inconsistently — A cost per hire that includes recruiter salaries one quarter and excludes them the next isn’t trended data, it’s noise. Pick a definition and hold it.
- Reporting only aggregate cost per hire — The aggregate number hides the mix. A company hiring 80% from referrals at low CPH plus 20% from contingent agencies at very high CPH has a different problem than one with the inverse mix.
- Optimising cost per hire by reducing investment in quality channels — Cutting referral bonuses or careers-site investment lowers CPH temporarily and raises it permanently when low-cost channels weaken.
- Comparing internal CPH to industry averages without adjustment — Industry averages mix sectors, role types, and economic conditions. The more useful comparison is the company’s own trend and channel mix over time.
- Ignoring the cost of unfilled roles — Open roles cost productivity that doesn’t show up in cost per hire. A low CPH achieved by leaving roles unfilled looks like efficiency on paper but hides a much larger cost.
Frequently asked questions
What is cost per hire?
Cost per hire is the total cost of recruiting divided by the number of hires made in a defined period — capturing both internal costs (recruiter salaries, tooling) and external costs (agencies, advertising, referrals). The calculation is simple in principle — total recruiting cost divided by hires — but the question of what counts as recruiting cost is where most disagreement happens.
What's a good cost per hire benchmark?
SHRM has historically reported an average cost per hire around $4,700 in the US, but the figure varies significantly by industry, role seniority, and economic conditions. The most useful benchmark for any company is its own trended cost per hire, broken down by channel and role family rather than reported as a single aggregate.
What's included in cost per hire?
Internal costs typically include recruiter salaries, TA leadership, coordinator time, and recruiting tooling. External costs include agency fees, job board spend, LinkedIn seats, referral bonuses, advertising, careers site investment, and assessment tools. The exact inclusion list varies by company and should be defined consistently across reporting periods.
How do you reduce cost per hire?
Increase hires from low-cost channels (referrals, talent pool re-engagement, direct sourcing) and reduce reliance on high-cost channels (contingent agencies). Improve sourcing efficiency through better Boolean and outreach. Strengthen employer brand to lift inbound application quality. Each lever takes months to compound, but the combined effect is usually a 20-40% reduction over 12-18 months.
Why does cost per hire vary so much by channel?
Because each channel has fundamentally different unit economics. Referrals cost a flat bonus regardless of role; contingent agencies cost 20-25% of first-year salary; LinkedIn is a fixed seat cost amortised across hires; job boards are variable spend per applicant. Channel mix is the largest single driver of overall CPH.