Hiring the right people is expensive, and getting more expensive each year. Between advertising, running background checks, using recruitment platforms, and onboarding new hires, the total cost per hire can add up fast. For HR professionals and business leaders trying to stretch tight budgets, understanding this number is essential. Cost per hire (CPH) offers a clear window into how effectively your hiring dollars are being spent and whether your recruitment process is paying off.
In this article, we’ll break down what cost per hire really includes, why it matters, how it’s evolved, and what you can do to keep it under control, without sacrificing candidate quality.
From Job Ads to Onboarding: What Cost Per Hire Really Includes
Originally, cost per hire was a simple measure, mostly covering external recruiter fees or job board costs. But as recruitment has become more sophisticated, so has the metric. Today, CPH often includes everything from employer branding and recruitment software to interview time, travel expenses, background checks, and onboarding materials. According to SHRM, the average cost per hire in the U.S. is $4,700, though some companies report spending over $10,000 for more specialized or senior roles. That’s a significant chunk of your HR budget—and one that deserves close attention.
Why Measure Cost Per Hire
Tracking cost per hire helps you spot leaks in your recruitment funnel. Maybe you’re spending heavily on underperforming job ads or relying too much on third-party agencies. By measuring CPH, you can set smarter budgets, reallocate resources to high-performing channels, and even build a case for new tools or hiring support. It also gives you a benchmark to compare internally over time and externally against industry norms, so you’re not flying blind when making recruitment decisions.
The Formula: How to Calculate Cost Per Hire
To make smart hiring decisions, you need to know exactly what you’re spending. Here’s the industry-standard formula for calculating Cost Per Hire (CPH):
🔍 Let’s break that down:
- Internal Costs include:
- Salaries of internal recruiters
- Employee referral bonuses
- Time spent by hiring managers on building job descriptions, posting, reviewing applicants, conducting interviews, deliberation, etc.
- Internal advertising (like intranet job boards)
- Lack of production while positions are vacant
- Onboarding costs (including orientation, training, ramp-up assistance, HR time, lead team time, etc.)
- External Costs include:
- Job board fees
- Recruitment agency fees
- Background checks
- Recruitment software or ATS costs
- Career fair or hiring event fees
Example:
If your company spent $120,000 on internal and external recruiting efforts last quarter and hired 20 employees, your cost per hire would be:
Tracking this over time helps you understand trends, identify areas for optimization, and build a more strategic hiring process.
Four Smart Ways to Bring Down Your Hiring Costs
- Automate the Busywork
Streamlining your hiring process with the right tools can dramatically cut costs. For example, applicant tracking systems (ATS) reduce time-to-hire and administrative work. One logistics company implemented an ATS and shaved 12 days off their average time to hire—saving thousands annually in lost productivity and admin hours. - Make Your Job Ads Work Smarter, Not Harder
Rather than blanket-posting to every site, use analytics to see where your best candidates come from. Companies that use targeted job advertising can reduce ad spend by up to 30% while improving applicant quality. Bonus tip: Having a strong careers page boosts direct applications, which cost far less than agency referrals. - Turn Your Employees Into Recruiters
Employee referrals often bring in higher-quality candidates at a lower cost. Ericsson’s strategic enhancement of its employee referral program led to a remarkable reduction in hiring costs. By increasing referral hires from 13% to 35%, the company achieved a 70% decrease in cost per hire and lessened reliance on external agencies and job boards. Referral hires also tend to stick around longer—another hidden ROI. - Audit Your Hiring Funnel—Often
Don’t set it and forget it. Review your hiring spend every quarter to see what’s working. Are you overspending on agency fees? Could internal mobility or reskilling reduce the need for external hiring? Audits help uncover areas where small changes can lead to big savings.
Real Companies, Real Results: What’s Working in the Field
Electrolux, a multinational home appliance manufacturer, faced challenges in talent acquisition due to labor shortages. To address this, they digitized their recruitment processes by adopting an AI-powered platform. This overhaul aimed to enhance candidate experience, boost internal mobility, and reduce both time and cost to hire.
In the healthcare sector, employee referrals have proven to be a valuable recruitment source. Referred healthcare employees demonstrate a 46% higher retention rate in high-stress roles, highlighting the effectiveness of referral programs in improving workforce stability.
These examples demonstrate how organizations across various industries have successfully implemented strategies to optimize recruitment processes, resulting in reduced costs and improved hiring outcomes.
Let’s Make Your Hiring Dollars Go Further
At TalentAlly, we specialize in helping companies hire smarter and more cost-effectively. Whether you’re looking to reach a more diverse talent pool, tap into new sourcing channels, or benchmark your hiring strategy, our tools and events are designed to deliver results. Let’s work together to reduce your cost per hire while building a stronger, more inclusive workforce.
The Bottom Line: Cut the Waste, Keep the Talent
Cost per hire isn’t just a number—it’s a reflection of how well your hiring engine runs. By focusing on the right strategies, trimming waste, and investing in what works, you can hire better talent faster—and save money doing it. Take the time to measure it, understand it, and act on it. Your budget (and your team) will thank you.
