The calculation and what belongs in it
Cost per hire is the total cost of recruiting over a period divided by the number of hires completed in that period.
The costs divide into external and internal, and most organisations count only the first.
| External | Internal |
|---|---|
| Agency and search fees | Recruiter salaries and overhead |
| Job board and advertising spend | Interviewer time across all rounds |
| Assessment tools and background checks | Hiring manager time on definition and decisions |
| Candidate travel and events | Referral bonuses paid |
| Recruitment technology | Onboarding and administrative setup |
Interviewer time is the item most often omitted and frequently the largest. A role with five interview rounds, three interviewers in each, consumes senior time worth more than most agency fees. Excluding it makes an interview-heavy process look cheap, which is precisely backwards.
Two further choices change the number. Whether to count hires that did not join, and whether to allocate costs to the period spent or the period the hire completed. Neither is wrong; both should be stated.
Why optimising it alone goes wrong
Cost per hire is a denominator measure with no quality term in it. Improving it is easy and the easy routes are the damaging ones.
- Stop using agencies for scarce roles. The figure improves and the roles stay open.
- Cut assessment stages. Cost falls, mis-hire rate rises, and the cost of that lands in a different budget.
- Hire more junior people against the same requirement. Cost per hire falls; capability does too.
- Lean on referrals exclusively. Cheap, fast, and it narrows the intake in ways that show up later in the composition of the workforce.
- Delay hard-to-fill roles into the next period, which flatters both the cost and the average time to hire.
None of these is dishonest. They are rational responses to being measured on a single number, which is why the measure should never be a target on its own.
What to read alongside it
- Quality of hire, however imperfectly measured: performance rating at first review, manager satisfaction, or whether the person was still there and performing at twelve months.
- Early attrition, particularly within the first six months. A cheap hire who leaves in month four costs the entire amount again plus the disruption.
- Time to fill, and its cost. A vacancy in a revenue-generating role costs more per week than most recruiting spend.
- Source effectiveness, so cost can be attributed to channels rather than averaged. Referrals and agencies have different costs and different retention profiles.
- Offer acceptance and post-acceptance drop-out, which reveal cost incurred with nothing to show for it.
The most useful pairing is cost per hire against twelve-month retention by source. It shows where cheap hiring is being paid for later, which is the question the headline measure cannot answer.
Using it sensibly
Three practices make the measure worth keeping.
- Segment it. By role family, seniority and location. A blended figure across a graduate intake and a specialist engineering hire describes neither, and comparing it to an industry benchmark computed on a different mix tells you nothing.
- State the definition alongside the number, and keep it stable. A definition that changes between years destroys the trend, which is the only genuinely useful part.
- Use it as a diagnostic rather than a target. A figure that moves sharply is a prompt to ask why: a change of channel, a difficult role, a burst of senior hiring. The answer is usually more informative than the number.
Where the organisation wants a single recruiting measure, cost per hire is not the one to choose. The proportion of hires still performing at twelve months tells leadership more, and it cannot be improved by cutting corners.
Frequently asked questions
How is cost per hire calculated?
Total recruiting cost over a period divided by the number of hires completed in it. The substance of the question is what goes into the cost, and most organisations count only external spend.
Should interviewer time be included in cost per hire?
Yes, and it is the item most often left out. A process with five rounds and three interviewers each consumes senior time worth more than most agency fees, and excluding it makes an interview-heavy process look cheap.
What is a good cost per hire?
There is no useful universal figure, because it varies enormously by role, seniority and location, and benchmarks are computed on different definitions. Your own segmented trend on a stable definition is the only comparison worth making.
Why is cost per hire a poor target?
Because it contains no quality term. The easiest ways to improve it, cutting assessment stages, avoiding agencies for scarce roles and hiring more junior people, all shift cost into budgets that are measured elsewhere.
What should we measure instead?
If you want one recruiting measure, use the proportion of hires still performing at twelve months. It tells leadership more than cost per hire and it cannot be improved by cutting corners.
How Engage measures hiring
Engage attributes recruiting cost to source and role rather than blending it into one organisation-wide figure, and because hiring, onboarding and performance sit in the same record, cost per hire can be read against twelve-month retention by channel. That is the pairing that shows where cheap hiring is being paid for later.
See recruitment analytics in Engage