Hiring is one of the largest and most underestimated expenses for companies. Without an accurate understanding of cost-per-hire (CPH), leaders may misjudge spending and miss opportunities to protect EBITDA. Managing CPH effectively can have a significant impact on profitability.
This guide explains what CPH is, how to calculate it, why costs are rising, and provides ways 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 include recruiter and hiring manager salaries (allocated to recruiting work), interview time, HR software, onboarding admin, and employer branding spend.
- External costs include job boards, sourcing tools, agency fees, assessments, background checks, relocation expenses, and 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.
Cost-Per-Hire is more than an HR metric. Applied consistently, it enables leadership to:
- Benchmark hiring efficiency
- Spot cost outliers by function or role type
- Report transparently to boards and investment committees
Why is Cost-Per-Hire Rising?
Recruiting costs have climbed steadily across organizations in various industries. Below are four primary reasons for the rise in Cost-Per-Hire costs:
- Weak Employer Branding: Companies with weaker reputations can spend up to 50% more to hire the same talent as their stronger-branded competitors.
- Process inefficiencies: Longer interview loops and additional 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 costs: 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 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 strategic lever you can pull at both the tactical and strategic levels. Below are a few ways to reduce costs in the near term and long term, engaging you in proactive cost management.
90-Day Wins
- Streamline scheduling: Automate interview coordination to cut delays.
- Standardize interviews: Use structured templates to reduce the number of 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.
Long-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 channels 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 your organization, follow this structured process:
1. Define your measurement period
When deciding on your measurement period, consider aligning with your reporting cycles. Many company leaders find quarterly measurements to be the most beneficial.
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 wage)
- 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 formula 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 the number of hires
Divide the total recruiting costs by the total number of hires in the measurement period.
7. Report two ways
- CPH (excluding vacancy cost): the baseline recruiting costs
- CPH (including vacancy cost): the total economic impact of hiring
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