Cost per hire: Formula, benchmarks, and how to reduce it

Recruiting teams are often asked to justify or reduce hiring-related expenses. Unfortunately, since many don’t have a consistent way to measure cost per hire (CPH), those conversations often rely on assumptions rather than data. CPH is a core recruitment KPI that every hiring team should leverage to measure efficiency and ROI by tracking the total cost to fill each role.

In this guide, we’ll explain what cost per hire means as well as how to calculate it using the Society for Human Resource Management (SHRM) formula. We’ll also explore how to benchmark and reduce these costs using practical strategies. 

Cost per hire meaning

A cost-per-hire breakdown measures the average cost to fill a position over a predetermined period. This accounts for both internal and external recruiting expenses and combines them into a single number.

In everyday use, cost per hire helps teams:

• Compare how much they spend across roles
• Pinpoint where current hiring practices aren't as efficient as they could be
• More accurately plan budgets

Cost per hire also helps hiring teams forecast when to hire. Personnel needs tend to increase when the company grows or there’s unexpected turnover. Knowing what it costs to fill a role helps organizations accurately forecast expenses in these times of flux.

Hiring costs at a glance

At a high level, cost per hire comprises two categories of variables: internal and external. Here’s more on each.

Internal costs

• Recruiter pay
• The hiring manager’s time
• Referral program payouts
• Recruiting tools and ATS subscriptions
• Internal overhead
• Administrative and compliance effort

External costs

• Background checks
• Pre-employment and skills assessments
• Job advertising
• Agency, search firm, and RPO fees
• Sourcing tools
• Recruiting technology
• Candidate travel
• Events
• Relocation
• Signing incentives

A detailed look at what to include in hiring costs

Start by defining what you consider a hiring cost. You can use the table above and the lengthier descriptions below to help determine what types of costs typically enter into the equation.

Most organizations include costs across the entire recruiting lifecycle, up to the employee’s start date. Some teams also add in indirect costs, like lost productivity or spending on employer branding. The key is to use the same definition each time so that changes in cost per hire reflect actual performance rather than changes in what is being measured.

Internal hiring costs

Internal costs reflect the time and resources your team invests in hiring and include the following concepts. 

• Talent acquisition and recruiter compensation: Salary and benefits for your hiring team. This is usually prorated to the period.
• Hiring manager and interviewer time: Hiring manager time should be included, as it represents paid labor. To estimate the total cost, multiply the number of hours spent on interviewing, intake, and debriefing work by each participant's hourly compensation to estimate the total cost. Hours add up, especially during long hiring periods, and while an indirect cost, lost productivity can affect an organization’s bottom line.
• Referral program payouts: Many companies offer existing employees payouts tied to successful hires.
• Recruiting technology: Applicant tracking systems (ATS) and interview scheduling tools generally charge one-time software fees or subscriptions. Factor in costs for video-interviewing platforms and sourcing automation tools, as well as prorated annual subscriptions for the period.
• Recruiting overhead: Overhead includes concepts like office space and equipment used in the hiring process.
• Administrative effort: Consider the time spent on drafting offer letters and onboarding paperwork. Background check coordination also ties into administrative effort. Like time spent on interviewing, this work ultimately costs your organization salaried hours.

External hiring costs

External costs are easier to track because they appear as direct, invoiced expenses. These costs typically fall into the following categories:

How to calculate cost per hire

The cost per hire formula is as follows:

Cost per hire = (Internal costs + External costs) ÷ Number of hires

To run the formula:

1. Choose a time period: Teams often calculate every quarter. This is advantageous because you can promptly identify cost trends without waiting an entire year to find out you’ve been overspending.
2. Calculate total internal recruiting costs: Convert time into a dollar value. Prorate annual subscriptions and use consistent estimates when exact data isn’t readily available. 
3. Calculate total external costs: Pull invoices from all external vendors, like agencies or job boards. If you have other recruiting-driven overhead, like the rental of an interview space, include these costs as well. 
4. Sum up both cost categories: Add the total external and internal costs together.
5. Divide by hires: Divide the total cost by the number of hires made within the defined period. Define what counts as a hire (e.g., full-time employees versus contractors) and apply that definition consistently so that results can be compared across reporting periods.

Benchmarks and average cost

Cost per hire varies based on role complexity and hiring volume. Industry conditions also influence sourcing effort and overall cost. As a result, there’s no specific “good” target to aim for. What matters is tracking CPH consistently within your own context, so you can spot trends, compare across role types, and make a defensible case for recruiting budget.

SHRM reports that the average cost per hire is typically between $4,425 and $4,800, but this varies by year and methodology. As a point of reference, here are some of the benchmarks, which show a wider range depending on the type of role.

What high or low cost per hire really means

Having a high cost per hire isn’t always a sign of overspending or disorganized processes. Sometimes, specialized roles require more sourcing effort. For example, when hiring an executive, you can expect a longer cycle than when filling an entry-level position.

The opposite is also true: a lower cost per hire doesn’t always point to financial efficiency. It may reflect weak pipelines or insufficient investment in sourcing strategies. 

To more accurately judge the success of your hiring efficiency and budgetary use, leverage segmentation. Compare costs by role level, department, or hiring type before drawing conclusions.

Factors that influence cost per hire

Cost per hire is dependent on several factors, especially when managing multiple roles, channels, and hiring cycles. Here are a few to consider.

1. Industry and market dynamics: When talent is scarce, recruiters spend more time sourcing candidates. This increases internal labor costs because more hours are required per hire. Teams also rely more on paid channels or agencies. This raises external spend, which increases cost per hire. 
2. Company size and hiring volume: Larger organizations spread fixed recruiting costs across more hires, which lowers the cost per hire. Smaller teams make fewer hires, so those same costs are divided across a smaller base, which raises the cost per hire.
3. Location and talent supply: The more competitive the market, the higher the salary expectations and amount spent on recruitment. Remote roles expand the talent pools, but they may require broader sourcing because candidates are spread across more regions and platforms. This increases the effort needed to identify and engage them.
4. Role seniority and specialization: Senior or specialized roles require more interviews and longer sourcing cycles. This often also increases the number of interview rounds and the involvement of agencies or search firms. This compounds internal labor costs, but on the other hand, entry-level roles spread costs across a higher volume, despite shorter cycles on average.
5. Urgency and time-to-fill pressure: Urgent roles push teams toward agencies or premium channels, which increases cost. These kinds of rushed timelines force teams to lean on more expensive channels (agencies, premium job boards) and increase stakeholder time.
6. Recruiting channel and resourcing model: Agency-heavy hiring is the single largest external cost driver for most organizations. Direct sourcing reduces reliance on paid channels.

Track and report CPH metrics

Just like with every other recruiting metric, tracking cost per hire only exposes reliable trends when done consistently. Isolated numbers don’t tell you much. Since you’re looking for enough data to identify meaningful patterns without excessive noise, it’s best to use a quarterly cadence.

The best reporting views include:

• CPH trend over time: Track cost changes across quarters. Connect shifts to hiring volume or process changes by drilling down to the root causes behind them.
• CPH by department and role level: Identify the differences between your specialized, more technical roles and high-volume hiring.
• CPH by sourcing channel: Take a look at how costs compare to outcomes. Some channels are known to deliver volume but not necessarily technical quality. Knowing which is best for each type of recruitment effort is critical.
• CPH vs benchmarks and targets: Outliers happen. An unusually expensive executive search or a surprisingly cheap referral hire will skew averages if you treat them as representative. When outliers appear, flag them for investigation.

Ways to reduce cost per hire

Efficiency is the ultimate goal when reducing your organization's average cost per hire. However, the last thing you’ll want is to compromise the quality of your hiring process to reduce costs, as this will only lead to downstream issues, like mis-hires (which are, incidentally, expensive mistakes). Tactics need to be evaluated over time, which is why consistency is so mission-critical.

Here are a few smart ways to reduce cost per hire:

1. Strengthen employer brand: If you want to avoid the expensive paid channels and lower your cost per hire, strengthening your brand is a great first step. Strong, well-known brands will attract direct applicants organically. Try leveraging employee testimonials, which tell a positive story about working for you.
2. Build and nurture talent pipelines: Just because an applicant didn’t fill a specific position doesn’t mean that their effort was wasted. “Silver medalists” and past applicants are tappable resources that save hiring teams valuable time and money. Re-engaging past candidates costs less than sourcing new ones from scratch.
3. Optimize sourcing channels: Teams that rely on reactive sourcing often see a higher cost per hire due to repeated spending. Being proactive builds pipelines so that your team never loses contact with prospective candidates. This helps reduce your dependence on paid channels.
4. Automate manual recruiting tasks: Use AI and automation to reduce recruiter time. Recruitment software, like Juicebox.ai, handles scheduling and outreach, reducing manual input and lowering the internal recruiting costs associated with manual work. 
5. Prioritize employee referrals: While referral bonuses may seem like an additional expense, referral hires are faster and less expensive than recruitment process outsourcing (RPO). They also tend to perform better and stay longer than those from other sources.
6. Use recruiting data to remove bottlenecks: Talent management metrics help teams identify bottlenecks in the hiring process. Most ATS platforms surface this data natively, and dedicated analytics tools can layer on top for deeper reporting.
7. Coach hiring managers: Clear intake processes reduce rework and unnecessary interviews. Implement structured intake meetings and scorecards to streamline processes.
8. Train interviewers to reduce mis-hires: Better hiring decisions reduce the incidence of costly replacement hires. Implement structured interview training to improve the hiring team's decision quality.

Leverage Juicebox to better manage your cost per hire

Cost per hire works best when tracked as a trend rather than a one-off metric. The goal is to balance costs and increase speed and quality while improving efficiency over longer timescales. The biggest drivers of cost include:

• Sourcing strategy
• Pipeline strength 
• Internal effort

Your team should make a concerted effort to reduce reliance on expensive channels while improving sourcing efficiency. This will deliver reduced costs over time. 

Reducing cost per hire comes down to sourcing smarter, not just spending less. Juicebox searches 800M+ profiles from 30+ sources using everyday language, so your team spends less time on manual sourcing and more time talking to the right candidates.

What is the average cost per hire?

Most estimates place the average cost per hire between $4,425 and $4,800. This varies widely by role type and industry. Company size is also a factor. Executive roles often exceed $14,000. With cost per hire, there’s a lot of variance, so treat these benchmarks as a starting point.

Should the cost per hire include the hiring manager's time?

Absolutely. Hiring manager time is an integral part of internal cost estimates. Converting interview hours into a dollar value provides an accurate view. Also, take into account any time spent on meetings and debriefs centered around hiring.  

How often should I calculate cost per hire?

Quarterly is the most practical cadence for hiring teams. It balances accuracy with timely insights by delivering enough data to infer patterns without waiting a full year. It also aligns with standard business planning and budget review cycles.