Hiring isn’t cheap. Job postings, recruiter fees, interviews that drag on forever – it all piles up before you even blink. And if you are not paying attention, your cost per hire starts looking like a runaway train – burning through your budget without you realizing it. Cutting costs sounds like the obvious fix – until you try it. Most so-called “cost-saving” tricks just create bigger problems.
The trick isn’t spending less – it is spending right. You don’t need to throw money around to attract top talent, but you also don’t need to cheap out. There is a smarter way to do it, and that is exactly what we are exploring today. Let’s break down how to calculate your cost per hire and, more importantly, how to trim the fat without losing the quality.
In A Rush? Here’s A Cost Per Hire Formula & Example To Start With
Need a quick way to measure cost per hire? Here’s the formula:
Cost Per Hire = (Total Internal Recruitment Costs + Total External Recruitment Costs) ÷ Total Number of Hires
Here’s a quick example. Let’s say your total recruiting costs for the last quarter were $50,000, and you hired 10 people.
$50,000 ÷ 10 = $5,000 per hire
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What Is Cost Per Hire & Why Is It Important?
Cost per hire is the total amount spent to recruit and onboard a new employee, including job ads, recruiter fees, interviews, and training expenses. It is a key metric that helps you understand hiring efficiency and optimize your recruitment budget.
Here’s why it actually matters:
- Tracks Spending: Helps you see exactly how much you are paying to fill each role.
- Identifies Inefficiencies: Pinpoints where hiring costs can be reduced without sacrificing quality.
- Improves Budgeting: Ensures recruitment expenses match overall business goals.
- Enhances Hiring Strategy: Shows whether your current approach is cost-effective or needs adjustments.
- Impacts Retention: A well-spent budget means better hires, which reduces turnover and rehiring costs.
How To Calculate Cost Per Hire + Examples
Tracking your cost per hire is about making sure every dollar spent on recruitment is actually worth it. Here’s how to do it step by step, with examples to make it all crystal clear.
Step 1: Define The Hiring Period
Before you start adding up costs, you need to decide on a time frame. Are you looking at the cost per hire for the past month? The last quarter? The entire year? Having a clear hiring period helps you stay consistent and makes comparisons easier down the line.
Example:
Let’s say you are analyzing the cost per hire for Q1 (January to March). This means every hiring-related expense within this period will be included, and only the hires made during this time will count in your calculation.
Step 2: Include Internal Recruiting Costs
Internal hiring expenses are the costs that come from within your company. This includes your HR team’s salaries, time spent on interviews, hiring software subscriptions, and any internal referral bonuses.
Example:
Your in-house recruiter spends 50% of their time hiring, and their salary is $6,000/month. Over 3 months, that is $18,000, but only 50% of that is for hiring – so you count $9,000. If you pay a $500 referral bonus for each new hire and made 3 referral-based hires, that is another $1,500.
Total internal costs of hiring so far: $10,500.
Step 3: Factor In External Recruiting Costs
External hiring expenses come from outside your company. This includes job ads, recruiter fees, background checks, and any hiring-related travel costs.
Example:
You spent $3,000 on job postings, $4,000 on agency recruiter fees, and $1,500 on background checks.
Total external hiring costs: $8,500
Now, combining internal and external costs, your total hiring cost is $19,000 so far.
???? Did You Know?
65% of companies now use AI to choose their next employees.
(Source)
Step 4: Count The Total Number Of Hires
Now, count how many people you actually hired during the defined hiring period. Only include the internal and external hires that successfully started their roles, not just job offers sent.
Example:
If your company made 10 hires between January and March, that is your number for this step.
Step 5: Calculate The Cost Per Hire
Now for the easy part – just divide the total hiring costs by the number of hires.
Formula:
Cost Per Hire = (Total Internal Hiring Costs + Total External Hiring Costs) ÷ Total Number of Hires
Example:
Using our numbers:
($10,500 + $8,500) ÷ 10 hires = $1,900 per hire
That means, on average, each new employee cost your company $1,900 to hire.
Step 6: Analyze & Benchmark For Optimization
The real value comes from analyzing cost per hire – how does your number compare to industry benchmarks? Where can you cut costs without sacrificing quality? Here’s what you should do:
- Compare with industry standards
- Track trends over time
- Identify cost-saving opportunities
Example:
If the industry average cost per hire in your sector is $3,000, your $1,900 per hire looks pretty good. But if competitors are hiring for $1,500 with the same or better results, it is time to dig deeper. Maybe you are overspending on job ads or using a recruiter when an internal referral program could be more effective.
Internal Hiring Costs
| Cost Factor | What This Entails |
| HR Team Salaries | Compensation for team managing recruitment processes. An HR manager’s average annual salary is $145,750. |
| Recruitment Software | Expenses for Applicant Tracking Systems (ATS) and other recruitment tools. An ATS subscription can cost around $100 per month, totaling $1,200 annually. |
| Employee Referral Bonuses | Incentives given to current employees for successful candidate referrals. It typically ranges between $1,000–$5,000 per successful referral. |
| Training and Onboarding | Costs related to training materials, programs, and time spent by trainers. Companies spend an average of $1,000–$1,250 per employee on training annually. |
| Onboarding Materials | Expenses for providing new hires with necessary equipment and supplies. Setting up a new employee’s workspace can cost between $1,500–$3,000. |
| Administrative Expenses | General overhead costs related to the recruiting process. This includes office supplies, utilities, and other operational expenses. |
External Hiring Costs
| Cost Factor | What This Entails |
| Job Board Fees | Fees for posting job listings on platforms like LinkedIn, Indeed, and Glassdoor. Premium postings typically cost between $100–$500 per listing. |
| Recruitment Agency Fees | Payments to external recruiters for sourcing and placing candidates. Agencies usually charge 15%–30% of the hire’s first-year salary. |
| Background Checks | Costs for conducting background screenings on potential hires. It ranges from $10–$500 per candidate, depending on the depth of the check. |
| Career Fair Participation | Fees and materials for attending job fairs and other events to attract candidates. It can cost around $100 per event, plus expenses for literature and signage. |
| Employer Branding Efforts | Investments in promoting the company as an attractive workplace. Costs can vary widely based on strategies used, like marketing campaigns or sponsorships. |
| Pre-Employment Assessments | Fees for aptitude, skill, or personality tests to evaluate candidates. Expect to pay around $20–$50 per assessment. |
| Recruitment Marketing | Paid ads on job boards, social media, or SEO efforts to attract candidates. These campaigns generally cost $200–$1,000 per month. |
| Candidate Travel Costs | Expenses for flights, accommodation, and meals when interviewing out-of-town candidates. A single candidate’s relocation expenses could be between $500–$2,000. |
How Much Does It Cost To Hire An Employee?
Hiring a new employee involves various expenses beyond just their salary, and these costs can differ significantly across industries. Let’s take a closer look at the average hiring costs in different sectors:
???? That’s a Lot!
Companies can save an average of $87,012 annually by outsourcing.
(Source)
Cost Per Hire By Industry
| Industry | Average Cost |
| Manufacturing | $3,497 |
| Public Administration and Education | $4,160 |
| Construction, Utilities, Agriculture, Mining | $4,173 |
| Healthcare and Social Services | $4,770 |
| Administrative Support | $6,338 |
| Professional, Scientific, and Technical Services | $6,200 |
| Nonprofit Organizations | $4,151 |
| Accommodation and Food Services | $1,070 |
| IT and Software Development | $4,000 |
| Legal Services | $3,712 |
These costs can vary widely based on several factors:
- Position Level: Executive roles often incur higher recruitment expenses.
- Industry Demand: High-demand fields require more competitive compensation packages.
- Geographic Location: Cost of living and local market conditions can influence hiring expenses.
- Recruitment Channels: Using external agencies versus internal recruitment teams affects costs.
- Onboarding and Training: Comprehensive training programs add to initial hiring costs.
- Time-to-Fill: Longer recruitment processes can escalate costs due to prolonged vacancies.
Cost Per Hire By Hiring Model
| Hiring Model | Average Cost |
| In-House Recruitment | $4,700 per hire |
| External Recruitment Agencies | 20-30% of the new hire’s first-year salary |
| Employee Referral | $1,000 to $5,000 |
| RPO (Recruitment Process Outsourcing) | $3,000 to $8,000 |
| Contingency Recruitment | 15%-25% of the new hire’s first-year salary |
| Retained Search Firms (Executive Search) | 30%-50% of the new hire’s first-year salary |
8 Proven Ways To Reduce Hiring Costs
If you are serious about cutting down your cost per hire, you need smarter strategies. Here are 8 gold nuggets that will help you bring in top talent without burning through your hiring budget.
1. Turn Your Careers Page Into A Magnet
Your careers page isn’t just a formality—it is a 24/7 recruiting machine (or at least, it should be). A well-optimized careers page can attract high-quality candidates without you spending a dime on job ads.
- Show off your company culture with real employee stories and behind-the-scenes videos.
- Make the application process smooth – nobody wants to fill out a 30-minute form.
- Optimize for SEO so candidates actually find your job openings when they search online.
2. Leverage Employee-Generated Content
Your employees are your best marketing tool. Instead of just telling candidates why your company is great, show them with authentic employee-generated content. When job seekers connect with real employees, they trust your brand more – leading to more organic applications (and fewer paid ads).
- Encourage team members to share their experiences on LinkedIn or TikTok.
- Feature employee takeovers on your company’s Instagram Stories.
- Show real projects your team is working on so candidates see the impact they could make.
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The interview process takes an average of 23 days.
(Source)
3. Use AI To Pre-Screen Candidates – But Do It Right
AI-powered hiring tools can cut down on the time (and cost) of sorting through applications, but only if you set them up smartly.
- Train AI tools to look for skills and cultural fit – not just keyword stuffing.
- Use AI chatbots to answer candidate questions instantly to reduce recruiter workload.
- Analyze past successful hires to refine AI screening criteria.
4. Make Employee Referrals Irresistible
Referrals are gold. Employees know who’s a good fit and can save you thousands in recruiting fees. But most referral programs fail because they’re boring or underwhelming.
- Offer more than just cash – think experiences (like a paid vacation day) or charity donations.
- Keep it simple. A complicated process kills participation.
- Recognize employees publicly when they bring in great hires.
5. Build A Talent Community Before You Need It
Why scramble for candidates when you can have a talent pool ready to go? Companies with a pre-built network of interested candidates fill roles faster and cheaper.
- Create an email newsletter for passive candidates to keep them engaged.
- Host virtual Q&A sessions about your industry and company culture.
- Offer valuable career content to keep potential hires interested until the right role opens up.
6. Automate Your Hiring Process
Time is money. The longer a role stays open, the more it costs you. Automating repetitive tasks can free up recruiters to focus on relationship-building and high-value work.
- Use automated interview scheduling to eliminate back-and-forth emails.
- Set up drip email campaigns to keep candidates engaged without manual follow-ups.
- Use resume parsing tools to speed up the screening process.
7. Negotiate Smarter With Job Boards & Vendors
Job boards and recruiting platforms love to charge premium prices, but you don’t always have to pay full price.
- Bundle services together to get discounts (e.g., multiple job postings or long-term contracts).
- Ask for performance-based pricing rather than flat fees.
- Test different job boards and double down on the ones that bring the best ROI.
8. Rethink Your Job Descriptions
Believe it or not, a bad job description can skyrocket your cost per hire. If your posting is generic or unappealing, you will either get no applications or the wrong ones.
- Use clear, compelling language that speaks directly to your ideal candidate.
- Highlight what makes your company unique – don’t just copy and paste boilerplate text.
- Avoid excessive requirements that scare off qualified candidates (do you really need 10 years of experience for an entry-level role?).
Conclusion
Cutting cost per hire without losing quality isn’t about pinching pennies – it is about hiring smarter. Leverage data to predict hiring needs before they are urgent and pre-build talent pools so you are not scrambling last minute. And if you are still throwing money at platforms with no ROI, it is time to rethink where you fish for talent.
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FAQs
What is the difference between cost per hire and cost per vacancy?
Cost per hire measures the total cost of hiring a new employee, including recruitment, advertising, and onboarding. Cost per vacancy refers to the financial impact of an unfilled position, including lost productivity and revenue. A high cost per vacancy can make a slightly higher cost per hire worthwhile if it means filling roles faster.
How does the quality of hire factor into cost-saving strategies?
A high-quality hire stays longer, ramps up faster, and delivers better results. This reduces turnover, training costs, and rehiring expenses. Poor hires drain resources and increase long-term costs. Prioritizing quality over speed prevents expensive mistakes, making every dollar spent on hiring more effective.
What are the best tools for tracking and reducing cost per hire?
- Applicant Tracking Systems (ATS): Greenhouse, Lever
- Human Resource Management Analytics: Visier, People Analytics by Google
- Job Board ROI Tracking: LinkedIn Recruiter, Indeed Analytics
- Automated Interviewing: HireVue, Spark Hire
- AI-Powered Screening: Pymetrics, X0PA AI
Does outsourcing recruitment help reduce cost per hire?
Yes, if done right. RPO (Recruitment Process Outsourcing) can cut costs by streamlining hiring, leveraging bulk discounts on job ads, and reducing time-to-fill. However, results depend on the provider. The wrong RPO can add unnecessary expenses, while the right one improves efficiency and hiring quality.
