The average cost per hire in the United States is around $4,700. But here's the real question: do you know how to calculate cost per hire for your organization?

Calculating cost per hire is crucial to optimize your recruitment budget and improve hiring efficiency. Yet many companies struggle with this metric. They either miscalculate it or miss hidden expenses.

In this piece, we'll break down the cost per hire formula in detail and show you exactly how to track and reduce your recruitment costs.

What is Cost Per Hire?

Definition and Purpose

Cost per hire is a recruitment metric that measures the total expenses your organization incurs when hiring employees. You sum up all internal and external recruitment costs, then divide that total by the number of new hires during a specific period.

The Society of Human Resource Management (SHRM) and the American National Standards Institute (ANSI) worked to create the standardized formula you'll use in 2012 [1]. Companies calculated cost per hire in wildly different ways before this standardization. Comparisons and measuring became nearly impossible.

You track every dollar spent on bringing someone into your organization as you calculate cost per hire. This has obvious expenses like job board fees and recruiter salaries. It also has less apparent costs such as interview time, background checks, and onboarding materials. Your cost per hire becomes more accurate as your data collection becomes more complete.

Your final cost per hire figure depends on multiple factors. Talent need in your market, your company size, your industry, and the specific job roles you're filling all play a role [1]. Small businesses see lower cost per hire numbers compared to large enterprises [1]. Smaller companies often lack the multistep hiring processes, dedicated recruitment teams, and advanced recruiting software that larger corporations rely on for high-volume hiring strategies. The reason becomes clear.

Industry measures reveal substantial variation. Entry-level positions in small businesses range from $1,500 to $5,000. Mid-level professionals in mid-sized companies across most industries fall between $7,000 and $15,000 [1]. Specialized technical roles, healthcare professionals, and executive positions can exceed $30,000 in larger enterprises and competitive sectors like technology, finance, and healthcare [1].

Why This Metric Matters for Your Business

Your organization gains several strategic advantages by tracking cost per hire. It determines your recruiting and HR budgets with precision [1]. You can create more accurate headcount planning and avoid budget shortfalls mid-year when you understand the financial resources required to hire future talent.

Cost per hire helps optimize your recruiting process [1]. The metric itemizes every recruitment expense. You can allocate more resources to effective recruiting methods and team members while reducing investment in approaches that don't deliver results. You might find, to cite an instance, that your recruitment agency isn't delivering strong returns compared to your employee referral program.

The metric serves as a measure both internally and against industry standards [1]. Your recruitment efficiency trends reveal themselves when you compare your cost per hire over time. You uncover whether you're overspending or underspending on your recruitment process by comparing it to industry averages. This measuring capability proves valuable when you justify budget requests to leadership or explain recruitment performance to stakeholders.

Cost per hire also helps you with quality of hire calculations [1]. You can assess whether a new hire's contributions to your business outweigh their recruitment and compensation costs with this metric. This connection between hiring costs and employee value helps you make smarter investment decisions about where to focus your talent acquisition efforts.

Maybe most significantly, understanding your cost per hire enables strategic decision-making. The data provides concrete evidence to secure leadership buy-in on recruitment initiatives. You can justify expenses based on the position's effect on company success rather than simply defending a large number when hiring for critical or high-cost roles.

The Cost Per Hire Formula Explained

The formula to calculate cost per hire is straightforward: add your internal recruiting costs to your external recruiting costs, then divide by the total number of hires during your chosen time period [1]. SHRM and the American National Standards Institute created this standardized approach to ensure consistency across organizations [1][1].

Internal Recruiting Costs

Internal recruiting costs represent expenses incurred within your organization for recruitment purposes [1]. These costs make up much of your total recruitment spend.

Your recruitment team's compensation packages constitute the largest internal expense. This has salaries, performance bonuses and benefits for everyone involved in hiring [1][1]. To cite an instance, a company might spend $250,000 on recruitment team salaries alone each year [1].

You must factor in hiring manager salaries as well. Departmental leaders and managers spend time screening applications, conducting interviews and making hiring decisions. That time diverts from organizational goals [1]. This represents actual cost even though money stays within the company [2].

Administrative and overhead fees support your recruitment function. Office equipment, rent and other operational expenses tied to recruiting activities belong in this category [1][1]. Training and development costs for your recruiting team also qualify as internal expenses [1][1].

Employee referral programs generate internal costs too. Referral bonuses can range from a few hundred to thousands of dollars depending on position difficulty [2]. One company tracked $13,000 in referral expenses over a year [1].

Technology subscriptions for candidate relationship management systems, applicant tracking systems and other recruiting software fall under internal costs [1][1]. A CRM subscription might run $15,000 each year [1].

External Recruiting Costs

External recruiting costs cover expenses paid to vendors or individuals outside your organization [1][2].

Recruitment agency fees range from 15% to 25% of the new hire's first-year salary [1]. For a $100,000 position, you could pay between $15,000 and $25,000 to an agency [1].

Job board postings and advertising costs accumulate fast. Companies might spend $20,000 on job board posts each year and another $5,000 on advertising [1].

Background checks, drug testing and pre-employment assessments represent standard external costs [1][1][1]. One organization spent $9,000 on background checks and $5,000 on coding assessments in a year [1].

Travel expenses for both candidates and recruiters, relocation costs for new hires and signing bonuses all count as external expenses [1][1][1]. Relocation alone can reach $50,000 for certain positions [1].

Career fair participation adds to external costs and has booth rental and materials [1][1]. Assessment center fees and aptitude test providers round out external expenses [1][1].

Common Expenses You Might Miss

Soft costs represent 60% of total recruitment expenses, while hard costs account for only 30% to 40% [1][1]. These soft costs can increase your true hiring cost by two to three times [1].

The time hiring managers invest in recruitment rarely gets tracked [1]. Yet this time affects productivity and represents substantial cost [1]. Administrative support for interview scheduling, document processing and compliance monitoring often goes uncounted [1].

Website maintenance for your careers page requires ongoing investment [2]. Development costs, hosting fees and regular updates to keep job postings current all factor into your actual recruitment spend [2].

How to Calculate Cost Per Hire: Step-by-Step Guide

You need to select a time period for your analysis before you can calculate cost per hire. Common timeframes are monthly, quarterly, or annual. The choice depends on your business needs and hiring volume [3]. Whatever period you choose, maintain consistency between your cost data and number of hires to ensure accuracy [4].

Step 1: Gather All Internal Cost Data

Get your expense report for the chosen time period from your finance team [2]. Request that they isolate costs related to your recruitment function. Create a spreadsheet and list each internal expense in one column [2].

Your recruitment team compensation packages go at the top. One insurance company tracked $4,000 in monthly recruitment team costs [2]. Add administrative fees and office equipment allocated to recruiting. Include compliance costs and training expenses. Add employee referral bonuses paid during the period. If you hosted company-sponsored networking events or paid for candidate relationship management subscriptions, those amounts belong here too [3].

Capture time-based costs by calculating hours spent on recruitment activities. Multiply the number of hours hiring managers invested in interviews by their hourly salary rates [5]. This step often reveals most important hidden costs that organizations overlook.

Step 2: Add Up External Expenses

Identify all payments made to external vendors and service providers during your timeframe. Create a second column in your spreadsheet for these costs [2].

Start with recruitment agency fees, which can reach substantial amounts for multiple hires. Add job board posting fees and advertising expenses. Include career fair participation costs. Background checks and pre-employment assessments accumulate across multiple candidates [2]. One company spent $2,500 on background checks and $1,000 on pre-screening in a single month [2].

Add travel expenses for both candidates and recruiters. Include relocation packages and signing bonuses. Any technology platform fees paid to external providers belong here [3]. Marketing costs for employer branding campaigns also fall into this category.

Step 3: Count Your Total Hires

Determine how many people you hired during your selected period. This number has all new employees to the company: full-time, part-time, and fixed-term contracts. Include those hired as temporary staff before converting to permanent positions [6]. Count employees hired through managers and external payroll workers. Add internal transfers and new employees from acquisitions or mergers [6].

Step 4: Apply the Formula and Interpret Results

Add your internal and external cost totals, then divide by the number of hires. If internal costs total $7,000 and external costs reach $16,500 for five hires in October, your calculation becomes: (7,000 + 16,500) / 5 = $4,700 per hire [2].

What Should (and Shouldn't) Be Included in Your Calculation

Costs to Include in Your CPH

Calculate cost per hire by including all expenses that contribute to attracting, processing, or securing a hire up to their start date [1]. This includes every recruitment and staffing cost from the original job posting through the candidate's acceptance and arrival at day one [1].

Add referral bonuses to your calculation at the payment date [7]. Relocation packages and signing bonuses count as well since these represent one-time costs tied to accepting the job offer [1]. Immigration and legal fees for work visas should be factored into your total when applicable [1].

Handle technology platform costs differently based on their nature. Spread platform licenses and brand spending as shared overhead per hire [7]. Include one-time fees like agency percentages and relocation at the individual hire level [7].

Costs to Exclude from Your CPH

Post-hire expenses fall outside your cost per hire calculation. The new employee's salary doesn't count [1]. Training programs conducted after the person starts and onboarding activities following day one stay separate from this metric [1][8]. Lost productivity during the employee's ramp-up period remains excluded as well [1].

Cost per hire covers getting an employee to day one and nothing beyond [1].

Industry Standards and What They Mean

The Society for Human Resource Management reports an average cost per hire of around $4,100 [9]. More recent data places this figure around $4,700 [10][11]. The median sits much lower at $1,633 [11][2] and suggests wide variation across organizations.

Role seniority affects costs in a big way. Hourly and entry-level operations range from $1,000 to $3,000 per hire [7]. General professional roles fall between $4,000 and $7,000 [7]. Technical and hard-to-fill positions reach $8,000 to $15,000 or higher when agencies and relocation factor in [7]. Senior leadership and executive searches span $15,000 to $40,000 or more, with search fees dominating these costs [7][11].

Industry variance matters too. Accommodation and food service sectors average around $1,070 per hire [11]. Manufacturing comes in at $3,497 [11]. Healthcare and social services reach $4,770 [11]. Professional and technical services climb to $6,200 [11].

Understanding percentile distributions provides additional context. The 25th percentile sits at $500, while the 75th percentile reaches $4,669 [2]. Your position within these ranges matters less than the trend direction and comparison to your specific role family and region [7].

How to Reduce Your Cost Per Hire

Reducing your cost per hire requires action across multiple areas of your recruitment function. Here are six proven approaches that deliver measurable results.

Strengthen Your Employee Referral Program

Employee referrals represent your most budget-friendly hiring channel. Companies believe referrals are the most budget-friendly way to find talent, with 84% agreeing on this [12]. Referred candidates cost five times less than agency hires [13] and fill positions 55% faster than traditional recruiting methods [14]. Structure your program with meaningful incentives ranging from $1,000 to $4,000 depending on the role [15]. Dedicated platforms make the referral process simple and allow employees to submit candidates in seconds and track their progress transparently [15].

Optimize Your Recruiting Channels

Which sources generate your best hires rather than just the most applicants? You need to track this. Cost per hire, quality of hire, and time to fill for each channel you use should be analyzed [12]. Budget from underperforming channels should be reallocated to those that deliver results consistently. This informed approach can save thousands per quarter [13].

Use Technology and Automation

Recruitment automation reduces manual effort and operational costs. Applicant tracking systems with automated screening, interview scheduling, and candidate communications free recruiters to focus on relationship-building [13]. AI-powered tools can reduce screening time by 75% [16].

Build Talent Pipelines

Talent pipelines reduce recruitment time from 170 days to just 60 days [17]. Relationships with qualified candidates should be maintained before you have immediate openings. Positions arise and you already have pre-vetted, engaged candidates ready. This reduces time-to-hire and sourcing costs [17].

Improve Your Employer Brand

Organizations with strong employer brands experience 50% lower cost per hire and 28% lower turnover rates [18]. Employee stories, career development opportunities, and company culture should be showcased on your careers page and social media. Talent already wants to work with you and you reduce reliance on costly job ads and agencies [13].

Train Your Hiring Managers

Interviewing done poorly leads to inconsistent assessments and costly mis-hires. Interviewer training, including shadowing programs and structured interview processes, helps managers make faster, more confident decisions while raising the bar for every hire [13].

Conclusion

You now have everything you need to calculate and optimize your cost per hire. As showed throughout this piece, the formula itself is simple. The real value comes from tracking detailed data and identifying hidden expenses.

Calculate your current cost per hire using the step-by-step process outlined above. Compare your results against industry measures to understand where you stand. Focus on implementing the reduction strategies that line up with your organization's needs.

Note that reducing cost per hire isn't about cutting corners. It's about investing smarter in recruitment channels and processes that deliver quality candidates. Keep tracking and optimizing, and your recruitment ROI will improve by a lot.

FAQs

Q1. What is the formula for calculating cost per hire? The cost per hire formula adds your internal recruiting costs (like recruiter salaries, referral bonuses, and technology subscriptions) to your external recruiting costs (such as agency fees, job board postings, and background checks), then divides that total by the number of new hires during a specific time period. This standardized formula was created by SHRM and ANSI in 2012.

Q2. How can I calculate cost per hire using Excel? You can use an Excel template to calculate cost per hire by creating a spreadsheet with columns for internal and external expenses. List all recruitment costs in separate columns, sum them up, then divide by the total number of hires during your chosen period. This approach helps you track and evaluate the financial impact of your hiring process systematically.

Q3. What is the average cost per hire in the United States? The average cost per hire in the United States is approximately $4,700, though the median is lower at $1,633. Costs vary significantly based on role level, industry, and company size. Entry-level positions typically range from $1,000 to $3,000, while executive searches can exceed $15,000 to $40,000 per hire.

Q4. What expenses should be included when calculating cost per hire? Include all expenses from job posting through the candidate's start date, such as recruiter salaries, job board fees, agency costs, background checks, referral bonuses, relocation packages, signing bonuses, and interview time. However, exclude post-hire costs like employee salary, training programs, onboarding activities, and lost productivity during ramp-up.

Q5. What are the most effective ways to reduce cost per hire? The most cost-effective strategies include strengthening employee referral programs (which cost five times less than agency hires), optimizing recruiting channels based on performance data, implementing recruitment automation technology, building proactive talent pipelines, improving your employer brand, and training hiring managers to make better decisions faster.

References

[1] - https://integralrecruiting.com/cost-per-hire-definitions-formulas-and-key-components/
[2] - https://www.aihr.com/blog/cost-per-hire/
[3] - https://www.icims.com/blog/how-to-analyze-cost-per-hire/
[4] - https://builtin.com/articles/cost-per-hire
[5] - https://harver.com/blog/cost-per-hire/
[6] - https://www.indeed.com/career-advice/career-development/how-to-calculate-cost-per-hire
[7] - https://umbrex.com/resources/company-analysis/human-resources/cost-per-hire/
[8] - https://www.emptor.io/blog/cost-per-hire-best-practices-reducing-recruitment-costs
[9] - https://www.staffingindustry.com/news/global-daily-news/average-cost-hire-about-4100-shrm-says
[10] - https://www.indeed.com/hire/c/info/measure-cost-per-hire
[11] - https://recruiterflow.com/blog/cost-per-hire/
[12] - https://www.jobscore.com/articles/reduce-recruiting-costs/
[13] - https://www.metaview.ai/resources/blog/cost-per-hire
[14] - https://www.bamboohr.com/blog/how-to-employee-referral-program
[15] - https://tribepad.com/article/building-an-effective-employee-referral-program-5-best-practices/
[16] - https://www.airswift.com/blog/reducing-cost-per-hire
[17] - https://www.cornerstoneondemand.com/resources/article/how-to-develop-talent-pipeline/
[18] - https://universumglobal.com/resources/blog/how-to-improve-employer-branding/