Cost per hire: what hiring an employee costs, formula
Cost-per-Hire (CPH) is the average amount spent to fill one vacancy. It includes external and internal recruiting costs: job ads, agency fees, tools/ATS, recruiter salaries and a share of interviewers' time, employer branding, relocation, etc. The metric shows how efficient the hiring process is and helps with budget planning.
What the metric measures
The average actual cost of filling a role, broken down by function, level (junior/senior), location, sourcing channel, and position type (backfill/new headcount, contract/full-time).
Calculation
- CPH = (External costs + Internal costs) / Number of vacancies filled
- External: job boards, ad campaigns, agency fees, screening fees, job fairs/events, relocation, referral bonuses*
- Internal: recruiter salaries/bonuses (share of time), interviewer time (hourly cost × hours), tools (ATS, sourcing), employer branding
- CPH by Channel/Role: calculated separately by channel, function, and level
- *Note: sign-on bonuses and compensation packages are usually not included in CPH; they are accounted for in the hiring TCO
Fix the policy: currency, period, what exactly counts as "internal"/"external," and how the cost of interviewers' time and employer marketing is estimated.
Calculation example
12 people were hired in a quarter. External costs: job board ads 36,000 and a recruitment agency 90,000; internal: part of the recruiter’s salary and managers’ time 66,000. Cost per hire = (36,000 + 90,000 + 66,000) / 12 = 16,000 per employee.
Data sources
Finance/GL (invoices for advertising/agencies/events), ATS/HRIS (filled roles, stages), interviewer time tracking, recruiting payroll data, employer marketing, relocation/referral costs.
Interpretation
- CPH↑: hard-to-fill roles/locations, dependence on agencies, long processes, low stage conversion
- CPH↓: strong employer brand, a strong referral channel, an efficient funnel, and fast TTH
- Assess the balance between CPH and quality-of-hire, time-to-hire, and retention
Useful breakdowns
- Channel: referral / job board / sourcing / agency
- Function/level: engineering, sales, operations; junior/middle/senior
- Location/format: office / hybrid / remote
- Role type: backfill vs new headcount; contract vs full-time
Dashboard visualizations
- Waterfall of cost composition (external/internal)
- CPH trend overall and by role/channel
- CPH heatmap by location/team
- Correlations CPH ↔ TTH/Offer Acceptance/Retention
- Comparison of CPH vs budget and market benchmarks
How to set targets
Set target CPH by role/location cluster, channel mix (e.g., referrals ≥ 30–40%), limits on agency spend, stage SLAs, and a funnel optimization plan (screening, interview panels, interviewer pool, automation).
Common mistakes
- Not accounting for "hidden" internal costs (interviewer time, employer branding)
- Mixing sign-on bonuses/compensation into CPH
- Comparing roles without normalizing for level/location
- Focusing only on CPH without monitoring quality and retention
- Not separating costs by sourcing channel
Questions for discussion
- Which channels deliver the best CPH/quality/TTH ratio?
- Where are 80% of the costs, and how can we cut them without lowering hiring quality?
- What effect would increasing the share of referrals/employer branding have?
- How does CPH differ for backfills vs new headcount and across locations?