How much does it cost to hire an employee? Cost per hire is a key HR metric that helps businesses understand the financial impact of their recruitment efforts. It’s a go-to measure to divide budgets and test the strategy efficiency, especially for hard-to-fill roles.
But every hiring process comes with a mix of visible and hidden costs. While job board fees are easy to track, what about the expenses tied to candidate vetting or employer branding?
In this guide, you’ll explore how to calculate cost per hire and strategies to reduce it while maintaining quality hires. Plus, we’ll analyze average costs by industry to help you benchmark your hiring process. So, let’s get started!
Cost per hire (CPH) is a recruitment metric that measures the total expense incurred to recruit a single employee. Unlike vague metrics, CPH offers a concrete way to analyze hiring costs by breaking them into two main categories: internal and external.
Internal costs include expenses like HR team salaries and recruitment tools. External costs, in turn, cover job board fees, agency commissions, and similar expenses. Next, you summarize all the costs and divide them by the total number of hires within a specific period.
The standard cost-per-hire formula is:
For example, if you hire 50 employees annually and spend $210,000 on it, the cost per hire will be $4,200.
So, tracking cost per hire allows you to compare your hiring efficiency against market averages or competitors. This way, you can identify high costs and reduce unnecessary expenses. But what exactly do you need to include in each category? Let’s take a further look.
Internal costs are expenses within your organization directly related to recruitment. Examples include:
When calculating, consider only the part directly linked to recruitment activities. For example, if HR staff handle multiple tasks, include only the percentage of their time spent on hiring. Similarly, spread the cost over the relevant period for one-time investments.
External costs are expenses incurred outside the organization during the hiring process. It can include:
Note that the above items are examples and may not apply to every organization. For both internal and external costs, include only those relevant to your company’s hiring process.
The total number of hires refers to the count of employees recruited within a specific time frame. Here, you should consider only roles that involve actual recruitment efforts and are filled, not ongoing. For example, you can count full-time, part-time, and even contractors and temporary employees.
Avoid roles that don’t add to recruitment costs:
Remember, the total must match the period you measured recruitment costs.
Now, let’s move on to an example of calculating cost per hire step by step.
First, select the period for which you want to calculate the cost per hire. It can be a month, a quarter, or a year. This step is necessary to separate the costs of recruiting only for positions you managed to close in this period.
For this example, let’s calculate the cost of hiring 12 tech employees in one quarter.
Here’s how to break down the internal and external cost components.
Start with the largest expense categories – HR staff salaries. It’s worth noting that both dedicated in-house recruiters and HR generalists can be a part of hiring. If a recruiter devotes 100% of their time, an HR generalist may allocate only 50%, which affects the calculation.
Let’s say you had both of these specialists involved:
So, the total cost of HR staff salaries for the quarter equals $43,486.
Employer branding also contributes significantly to internal costs. For example, you created content for a website and social media, which required 56 hours of a marketer’s time and 24 hours of a copywriter’s work. With an average salary of $73,000 per year (equivalent to $35 per hour), the total cost is 80 hours × $35/hour = $2,800.
You also need to calculate the time costs of other employees involved in the selection process. For instance, senior specialists may conduct final interviews or evaluate test tasks.
In this example:
Onboarding costs over a quarter will vary based on the time and resources allocated per hire. Let’s break down these expenses:
HR administrative tasks
8 hours per hire × $44/hour × 12 hires.
$4,224
Manager training time
16 hours per hire × $62/hour × 12 hires.
$11,904
Team training sessions
2 hours of team time per hire (5 team members × $40/hour × 12 hires).
$4,800
Materials & supplies
Handbooks, equipment setup, and branded welcome kits at $75 per hire × 12 hires.
$900
So, the total onboarding cost across 12 hires is $21,828.
External costs such as job board postings and advertisements can also greatly increase recruitment expenses. Assume you posted each role on two platforms: Indeed and LinkedIn.
Thus, you will spend $5,400 on job postings. It’s important to note that job postings can be free, with a single payment, or per day/month. Therefore, the longer it takes to close a vacancy, the more it will cost to post it.
Moving forward, the calculation for other external costs follows the same approach. To streamline, let’s skip these details and move to the next step.
Now, sum up all expenses to calculate the cost per hire. For example:
HR staff salaries
$43,486
Office utilities and equipment
$3,000
Referral bonuses
$2,000
Marketing and branding
$2,800
Time allocation costs
$21,828
Onboarding
$14,292
Job board fees
$5,400
Recruitment software subscriptions
$1,810
Total
$94,616
Finally, divide the total costs by the number of employees you hired:
Cost per hire = $85,668 ÷ 12 hires = $7,884
Beyond calculating the cost per hire, businesses can also measure the Recruiting Cost Rate (RCR). This metric calculates recruitment costs as a percentage of the hire’s annual salary. The formula is:
Let’s calculate RCR for a single hire. Suppose the total cost per hire is $7,884, and the average annual total pay for the role is $81,179. The RCR would be:
RCR = ($7,884 ÷ $81,179) × 100% = 9.7%.
But it’s important to calculate RCR for each hire individually rather than as an average across all roles. This way, you can accurately assess the differences in hiring costs across departments. For example, hiring a niche professional may have a significantly higher RCR than an entry-level employee.
Note: The costs presented in this example are approximations based on market averages and publicly available data. They provide a close representation of recruitment expenses but may not account for all variables specific to your industry. Actual costs may vary depending on your location and hiring methods.
Once you know how to calculate cost per hire, let’s move on to market data to compare your results with industry averages.
According to the SHRM Talent Access Benchmarks, businesses spend about $4,683 per hire, with a time-to-fill of 54 days. However, the cost of hiring a new employee differs significantly based on the role complexity. For example, on average, companies spend x6 more on recruiting an executive specialist.
Below is a breakdown of the average cost per hire and time-to-fill for non-managerial and executive roles across key industries.
$1,070
48 days
$28,329
54 days
Manufacturing
$3,497
53 days
$21,454
64 days
$4,160
65 days
$22,438
75 days
$4,173
55 days
$30,210
67 days
Construction, agriculture & utilities
$4,371
50 days
$26,996
58 days
Retail, wholesale & logistics
$4,705
47 days
$27,684
47 days
Healthcare & social services
$4,770
50 days
$19,847
59 days
Administrative support
$6,338
50 days
$26,070
57 days
$6,464
58 days
$39,193
63 days
General
$4,683
54 days
$28,329
62 days
Based on the data, professional niche industries, such as Scientific & Technical Services, have the highest cost per hire, reaching $6,464, compared to only $1,070 for Hospitality & Entertainment. This difference lies in the more complex recruitment processes and stricter requirements for candidates.
Here is why the cost of hiring an employee in professional industries is higher:
In addition, approving a vacancy takes longer – 20 days in professional industries compared to 13 days in Hospitality. So, there are more internal steps and alignment for complex roles, which reflect a higher cost per hire.
Now, let’s take a closer look at other CPH trends:
Recruiting new employees in industries with high demand or niche roles can quickly become a significant expense. However, a high cost per hire isn’t always inevitable. With the right strategies, you can cut unnecessary expenses and still attract top talent. Let’s explore a few actionable ways to improve your hiring ROI.
Recruiter time is one of the largest contributors to cost per hire. With proper optimization, companies can significantly reduce expenses and increase efficiency. How to achieve the above? For example, automate the most time-consuming processes.
Not all roles require the same hiring strategy. As seen in market data, the cost per hire varies a lot by role and industry. Besides, this correlation exists with the type of engagement: long-term, part-time, and temporary. Adapting your hiring methods to these factors ensures you get the greatest return on investment. Let’s look at a few scenarios.
The cost per hire of highly skilled niche professionals can be 3 to 4x the position’s salary. Your in-house recruiter will likely spend several times more time vetting such candidates. And that’s not to mention the higher costs of screening activities, senior staff engagement, etc.
In such cases, recruitment outsourcing can be a more cost-effective solution. Agencies often have access to pre-vetted talent pools, which can reduce the time associated with sourcing candidates. While the recruitment agency fee may range from 10% to 25% of the annual salary, it eliminates many internal costs.
For example, hiring a senior Salesforce developer through a recruitment agency at a 15% fee on a $130,000 salary would be $19,500. Compare this to the industry benchmark, where the cost per hire often surpasses $30,210. It’s about 35% of the benefit.
Let’s look at another scenario. Suppose you need to hire the same senior Salesforce developer, but only for a 6-month project. In this case, traditional in-house hiring may not be the most cost-effective approach. The time required to find the candidate, combined with salary and benefits, can make the process inexpensive for a short-term need.
Instead, you could consider staff augmentation. By partnering with a provider, you gain access to a pre-vetted specialist who can integrate into your team almost immediately.
For instance, hiring a senior Salesforce developer through staffing might cost $65 per hour, saving time and money. Over six months, the total cost would be around $67,600 (based on 40 hours per week), compared to the $130,000+ annual salary and associated cost per hire. Moreover, staffing agencies often handle administrative, HR, legal, tax, and hardware accommodation activities, so you save even more.
Let’s summarize these options in a comparison table.
Time-to-hire
6–9 weeks
4–6 weeks
2–4 weeks
Cost per hire
~$4,683 for entry-level to $28,329+ for seniors
10–25% of annual salary
$0 recruitment costs, you pay only rates of hires
Screening tools required
Yes
No
No
Onboarding costs
Full onboarding needed
Full onboarding needed
Not required
Free replacement
No
Yes, usually 1 free replacement
Yes
Best for
Entry-level or well-established roles
Niche and high-skill professionals
Short-term or project-based
According to LinkedIn Research, organizations with a well-developed employer brand achieve up to 50% cost-per-hire reduction and fill positions 1-2x faster.
Think about it: 75% of job seekers check an employer’s reputation before applying. What’s the first thing they do? In fact, 52% of candidates visit your website and social media to learn about your company. If these spaces feel outdated, you might lose top talent before the process even starts.
Also, candidates are 3x more likely to believe what your team shares about their work than official statements. So, encourage your employees to talk about their experiences online. Ask them to share their feedback on LinkedIn, Glassdoor, or even during networking events. You can also highlight positive stories on your company website and social media.
At the same time, don’t ignore negative feedback. Responding to reviews shows candidates you care about employee experiences.
All in all, a strong brand can lead to 50% more qualified applicants. And it also helps you keep employees longer. Companies with a solid reputation see a 28% reduction in turnover. That’s fewer roles to refill and more time focused on growth.
So, what should you do? Keep it real. Share case studies and success stories, highlight employee achievements, and make sure your online presence reflects who you are. By building trust, you’ll attract better candidates and set the stage for long-term success.
Cost per hire is essential to your success as an employer. It reveals the financial impact of hiring and helps identify inefficiencies and opportunities to save resources.
To improve your recruitment outcomes, you’ll need to:
With this research in place, you’ll control cost per hire and position your business for long-term success.
Looking for a smarter way to hire? DOIT Software can help you get the best IT talent at $0 recruitment costs. Let DOIT find the right fit for your team for up to 60% less. Share your requirements today and get the first relevant CVs in a week.
Get a consultation and start hiring for up to 60% less.
Start hiringThe average cost per hire in the US is approximately $4,683 for non-managerial roles and $28,329 for executive ones, according to SHRM. However, this metric varies significantly by industry. For example, Hospitality averages $1,070, while Professional & Technical Services reach $6,464.
In the technology sector, the cost per hire averages around $6,464 for non-managerial roles. For executive positions, this cost can rise to $39,193+.
According to market data, replacing an employee can cost 6–9 months of their annual salary. This estimate includes recruitment expenses, onboarding, training, and the loss of productivity during the transition. For example, replacing a $100,000-per-year employee could cost $50,000–$75,000.
Cost per hire (CPH) = (Total internal costs + Total external costs) ÷ Total number of hires
