Hiring is one of the largest and most underestimated costs in companies. Without a rigorous, comparable view of cost-per-hire (CPH), leaders risk underestimating spend, slowing execution, and missing opportunities to protect EBITDA.
This guide explains what CPH is, how to calculate it, why costs are rising, and the most effective levers to reduce them.
What is Cost-Per-Hire (CPH)?
At its simplest, CPH = (Total Internal Recruiting Costs + Total External Recruiting Costs) ÷ Total Number of Hires
- Internal costs: recruiter and hiring manager salaries (allocated to recruiting work), interview time, HR software, onboarding admin, and employer branding spend.
- External costs: job boards, sourcing tools, agency fees, assessments, background checks, relocation, signing bonuses.
What it isn’t: CPH does not include ongoing salary or long-term employee benefits—those are part of total employee cost, not hiring cost.
For PE-backed businesses, CPH is more than an HR metric. Applied consistently, it enables leadership to:
- Benchmark hiring efficiency across portfolio companies
- Spot cost outliers by function or role type
- Report transparently to boards and investment committees
Why Cost-Per-Hire is Rising
Recruiting costs have climbed steadily across industries. For portfolio companies, the drivers are especially acute:
- Employer brand impact: Companies with weaker reputations can spend 50% more to hire the same talent as stronger-branded competitors.
- Process inefficiencies: Longer interview loops and extra approval layers add recruiter and manager hours—raising internal costs and extending vacancy periods.
- Inflation and role mix changes: Even if job ad costs hold steady, higher salary expectations and a shift toward technical and managerial roles drive up recruiting costs. These hires take longer to fill and require more specialized sourcing.
- Hidden vacancy cost: Every unfilled role represents lost revenue or productivity. When multiplied across multiple openings, vacancy costs can rival direct recruiting spend.
Each of these factors translates into higher portfolio operating costs and slower execution—two pressures no leader can afford to ignore.
How to Reduce Cost-Per-Hire
Think of cost-per-hire as a lever you can pull at both the tactical and strategic level.
90-Day Wins
- Streamline scheduling: Automate interview coordination to cut delays.
- Standardize interviews: Use structured templates to reduce rounds without sacrificing quality.
- Maximize referrals: Employee referrals typically reduce CPH by ~$1,000 compared to other channels.
- Re-engage past candidates: Reactivate warm candidates to shorten sourcing and avoid new ad spend.
- Use agencies strategically: Rely on external recruiters only for specialized or surge hiring needs.
Medium-Term Enhancements
- Invest in employer branding: Strengthen your digital presence and employee reviews to reduce the premium paid for attracting talent.
- Optimize channel mix: Review CPH by sourcing channel quarterly and reallocate budget to top performers.
- Accelerate time-to-fill: Reducing days open protects productivity and lowers hidden vacancy costs.
- Track the right metrics: Pair CPH with time-to-fill, quality-of-hire, and retention to ensure savings don’t compromise performance.
How to Calculate Cost-Per-Hire Accurately
To get a reliable and comparable CPH across portfolio companies, follow this structured process:
1. Define your measurement period
Decide whether you’re measuring monthly, quarterly, or annually. PE operators often prefer quarterly to align with reporting cycles.
2. Gather internal recruiting costs
- Recruiter salaries and benefits (prorated for the % of time spent on hiring)
- Hiring manager time spent in interviews or sourcing (multiply hours × average hourly salary)
- HR/recruiting software and applicant tracking system (ATS) fees
- Employer branding or recruitment marketing spend
- Onboarding admin costs tied to new hires
3. Gather external recruiting costs
- Job ads and postings (LinkedIn, Indeed, niche boards)
- Sourcing tools and databases
- Third-party agency fees or retained search costs
- Candidate assessments and background checks
- Relocation or travel costs
- Signing or referral bonuses
4. Optionally include vacancy costs
Vacancy cost = average cost per day × average days open × number of hires. This captures lost productivity or revenue when a role sits unfilled.
5. Sum the totals
Add together all internal and external recruiting costs (plus vacancy costs if included).
6. Divide by number of hires
Take the total recruiting costs and divide by the total number of hires in the measurement period.
7. Report two ways
- CPH (excluding vacancy cost): the baseline recruiting cost
- CPH (including vacancy cost): the total economic impact of hiring
Need help with your talent acquisition function? We can help!
We offer customized consulting solutions to help private equity-backed organizations develop effective talent acquisition strategies and tactics.
Visit our talent acquisition consulting page to learn more.