The short answer
Cost per hire is the total amount you spend on recruiting in a period divided by the number of people you hired in that period. The cost per hire formula is: (external costs + internal costs) / total hires. External costs are what you pay outside parties, such as job boards, agencies, background checks and assessment tools. Internal costs are what you spend inside the company, mostly recruiter and hiring manager time, plus referral bonuses and your share of recruiting systems. A team that spent $58,700 on recruiting in a quarter and made 12 hires has a cost per hire of about $4,892. The hard part isn't the division. It's counting the same costs, the same way, every time.
The cost per hire formula, step by step
SHRM, the HR professional association, frames the calculation around external and internal costs. Here is how to run it in practice.
- Pick a period. A quarter or a year works best. Use the same period for costs and hires. A hire counts in the period the person accepted or started, so pick one rule and keep it.
- Choose your scope. All hires, or one segment such as engineering, hourly roles or a single location. Segment numbers are far more useful than a company-wide average.
- Total your external costs for that scope and period, from invoices and card statements.
- Total your internal costs, using time estimates and loaded pay rates (salary plus benefits and taxes).
- Divide the sum by the number of hires in scope.
- Write down your rules: what you included, how you estimated time, and which hires counted. Next quarter's number is only comparable if the rules match.
What to include: internal and external costs
Two judgment calls cause most arguments. First, sign-on and relocation bonuses: some teams count them, others treat them as compensation. Either is defensible if you are consistent and say which you chose. Second, interviewer time: it is real cost, but it is often left out because nobody tracks it. Estimate it anyway, using a simple count of interviews times average length.
Leave out onboarding and training after day one. Those belong to a separate metric. Mixing them in makes cost per hire jump whenever you improve onboarding, which sends the wrong signal.
A worked cost per hire example
Here is a hypothetical 300-person company that made 12 hires in one quarter. The numbers are illustrative, not benchmarks.
Notice what drives the number. One agency hire is almost a third of total spend. Without it, the other 11 hires average about $3,700 each. That is why one blended figure can mislead. Report agency and direct hires separately, and senior and entry-level roles separately.
Benchmarks: use them carefully
Published cost per hire benchmarks are scarce and often old. SHRM's Human Capital Benchmarking Report, covering fiscal year 2015 and published in August 2016, reported an average cost per hire of $4,129, from a random sample of SHRM members. That is a decade-old, all-roles average across very different employers. Treat it as a rough reference point, not a target.
A better benchmark is your own history. Track cost per hire by quarter for each segment, and look at the trend next to two other numbers:
- Time to fill. Cutting cost by slowing down hiring often costs more in lost output than it saves.
- Quality of hire. First-year retention and hiring manager ratings tell you whether cheaper hiring is still good hiring.
How interview automation changes the interview-cost line
For many teams, the largest controllable internal cost is first-round screening. Take the example above and assume the team screened 240 candidates in the quarter, 20 per hire. A 30-minute recruiter phone screen plus 15 minutes of scheduling and notes is 45 minutes. At a loaded rate of about $54 an hour (the $112,500 recruiter), that is about $41 per screen, or about $9,700 a quarter.
Now move the first round to an AI interview that candidates take on their own schedule. NTRVSTA's public pricing works out to about $8.74 per interview on its Growth plan at 80 interviews a month. At 240 interviews a quarter (80 a month), that is about $2,100 in software. If a recruiter then spends 10 minutes reviewing each report, add about $2,160 in time. The quarter's first-round cost drops from about $9,700 to about $4,260, roughly $450 less per hire.
Be honest about what that saving is. Recruiter salary is fixed, so the roughly $5,500 is mostly freed capacity rather than cash, unless it lets you avoid a new recruiting hire or an agency fee. That is often where the real money is: one avoided agency placement in the example above is worth more than a year of screening savings. See our AI interview pricing guide for per-interview costs across vendors, and compare plans on our pricing page.
Common mistakes
- Counting only invoices. External-only cost per hire flatters teams with big internal recruiting functions.
- Mixing periods. Costs from one quarter divided by hires from another produce noise.
- One blended number. Executive and hourly hires belong in different buckets.
- Chasing the number down. Cutting structured interviews to save time can raise turnover. A consistent interview scorecard protects quality while you cut cost.
- Ignoring volume. Fixed costs spread over more hires lower cost per hire without any real efficiency gain. Watch total spend too.
If you hire at high volume, our list of high-volume hiring software covers tools built for that flow.
Questions
What is the formula for cost per hire?
Add your external recruiting costs and your internal recruiting costs for a period, then divide by the number of hires made in that same period. Use one consistent period, such as a quarter or a year, and the same cost categories every time you measure.
Should recruiter salaries be included in cost per hire?
Yes, the share of recruiter and recruiting team pay spent on hiring belongs in internal costs. Leaving it out makes cost per hire look far lower than it is, especially for teams that hire mostly through their own recruiters rather than agencies.
What is a good cost per hire?
There is no single good number, because it varies with role level, location and how much you rely on agencies. SHRM's benchmarking survey for fiscal 2015 reported an average of $4,129, but that figure is old. Your own trend over time, by role type, is the more useful benchmark.
How do we lower cost per hire without hurting quality?
Look at the biggest line items first, usually agency fees and recruiter time. Improve job posts so fewer unqualified people apply, structure and automate first-round screens, and track quality of hire next to cost so savings don't come from worse hires.
Curious what your own first-round numbers would look like? Book a 20-minute demo and bring your hiring volume, or try a sample AI interview first.
