Cost per hire: how to calculate & why it’s important

Did you know that the average cost of hiring a new employee in the United States can reach US$4,700 — or even climb to US$35,000 for executive roles?* These figures highlight recruitment's financial impact on your organization, making it critical to track and understand your cost per hire. By analyzing this metric, you can uncover inefficiencies, streamline hiring processes, and make informed decisions about resource allocation.

Effective cost-per-hire analysis also underscores the value of employee retention, revealing how keeping your existing team engaged can minimize recruitment expenses and bolster long-term success.

In this guide,  we’ll explain what cost per hire is, how to calculate it, and why it matters. You’ll also learn how to gather the right data for accurate calculations. Finally, we’ll explore how focusing on employee retention can help you minimize hiring costs while fostering a more engaged, high-performing team.

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*SHRM, 2022
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What is cost per hire?

Cost per hire (CPH) is a recruiting metric that measures the average cost of hiring a new employee. It’s calculated by summing up all hiring costs and dividing that total by the number of hires made during a given period. 

This is a vital metric for HR teams; it offers insight into the efficiency of your hiring process and helps you spot areas for improvement. 

Beyond hiring, cost per hire also underscores the importance of retention — reminding companies that keeping their existing workforce engaged and supported often costs less than recruiting replacements.

Your cost per hire doesn’t always need to be reduced, particularly if your spending aligns with industry averages or you’re hiring for competitive, specialized, or senior roles. While there’s no universal “ideal” cost per hire, understanding your organization’s figure is crucial to improving HR efficiency. 

Tracking cost per hire equips you with valuable insights for strategic decisions, whether you need to refine processes, optimize spending, or make a case for investing in employee engagement.
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How to calculate cost per hire

The formula for calculating cost per hire is straightforward:

💰 Cost per hire = (Internal recruitment costs + External recruitment costs) ÷ Total number of hires

* in a specific period

The above sounds simple, but finding the data to make an exact calculation isn’t always straightforward. Let’s explore where you can find it; when you have this data, you can calculate your cost per hire and use it as a starting point to understand your recruitment costs, forecast expenses, reduce spending, and make more strategic investments in your current employees. 
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Finding the data you need to calculate cost per hire

Gathering correct data on internal and external recruitment costs is crucial when calculating an accurate cost-per-hire figure. 
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Internal costs

First, calculate your internal costs. This isn’t an exhaustive list, but these are likely to include:

• Administrative expenses — Expenses that relate to recruitment and/or hiring administration, including office equipment, food and beverages, and/or office space rental for interviews.

• Compliance expenses — The costs of ensuring that everything in your process is compliant with state or federal laws, for example, legal counseling.

• Learning and development expenses — Costs associated with training HR team members on the recruitment and hiring process. This category could also encompass training that new hires have to complete as part of the onboarding process.

• Cost of hiring manager time — The time the hiring manager can’t spend on their usual tasks to focus on recruitment and/or hiring; this is usually calculated based on the manager’s hourly rate. 

• Cost of employee time — The recruitment and hiring process involves more than just the hiring manager. Several employees — in HR and other departments — may need to consider applicants, interview them, and provide feedback.

• Signing bonuses — One-off bonuses some companies pay to new team members.
  
  
• Relocation expenses — If a successful candidate needs to relocate for the job, the organization may offer to pay for part or all of the related costs.
  
  
• Cost of onboarding — This might encompass the hours or days various team members spend onboarding a new employee, answering questions, creating or improving the onboarding process, and/or delivering or explaining an employee onboarding guide.
  
  
• Cost of considering existing employees for promotion — Depending on your company policy (or internal promotions guide), your team might spend time and resources considering existing employees as candidates for open roles before expanding your search.

Some companies may see the above costs as part of the recruitment process, while others might separate them into onboarding-specific costs. How you categorize these expenses is up to you, but be consistent in your calculations for an accurate picture of cost per hire.

🤓 Leapsome’s Core HR features streamline these efforts, allowing HR teams to automate data tracking, simplify onboarding processes, and focus on high-value tasks.

External costs

Now, calculate your external costs. Again, this isn’t an exhaustive breakdown, but these will likely include:

• Marketing expenses — Advertising costs associated with your recruitment process, such as social media advertisements or job board posts.
  
  
• Employee referral expenses — Costs associated with any referral programs you may have to encourage existing team members to refer candidates (e.g., if your organization awards US$1,000 to any employee who refers someone who stays for at least six months).

• Third-party expenses — Any costs paid to a third party — e.g., recruitment agencies, headhunters, and applicant tracking system (ATS) fees.

• Travel expenses — Travel expenses related to the recruitment or hiring process, such as the cost of taxis, train or flight tickets, gas, toll fees, or hotel accommodation.
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Total number of hires

The total number of hires that you include in your calculation depends on the time frame you’re measuring.

To get an accurate number, determine:

• A specific period for your calculation, for example, a particular recruitment initiative or quarter
  
  
• If you’ll include internal candidates or external candidates only
  
  
• If you’ll include all types of employees or analyze a specific category (for example, full-time team members, part-time team members, and/or contractors)
  
  
• If you’ll include employees who got the role as a result of an internal promotion or transfer

Once you’ve decided on the above factors, total the number of new hires you made within the specified period, divide your total costs by that figure, and get your final cost per hire.
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Why is cost per hire a critical metric to track?

Cost per hire isn’t just a number — it’s a window into your recruitment process and efficiency. By tracking this metric, organizations can gain actionable insights and unlock opportunities for improvement. Here’s how it can help:

• Revealing where you might reduce costs — Understanding cost per hire helps HR teams identify areas where spending could be optimized. For example, you might notice that travel expenses were unusually high for a specific hiring campaign or that your recruitment agency isn’t delivering strong ROI. These insights allow you to cut unnecessary costs and allocate resources more strategically.

• Supporting retention efforts — Recruitment costs don’t exist in isolation. High cost-per-hire figures often point to frequent turnover, which is expensive and disruptive. Organizations can minimize turnover and reduce hiring expenses over time by focusing on retention initiatives (such as career development, competitive compensation, and engagement).

• Helping secure resources for HR initiatives — A clear understanding of cost per hire allows HR teams to advocate for the resources they need. For example, knowing your average cost-per-hire can help you make a stronger case for investing in tools like a comprehensive HR platform with people-enablement features or implementing new employee engagement strategies.

• Uncovering recruiting nuances — Not every hire should have the same cost per hire. For example, senior or specialized roles often require a higher investment, whether through longer recruitment processes or additional marketing spending. Tracking cost per hire helps you assess recruitment costs at a granular level, ensuring the right resources are allocated for each role without unnecessary overspending.

While cost per hire provides valuable insights, it’s important to contextualize the data within your organization’s goals. For some roles or industries, a higher cost per hire may be necessary to secure top talent. But in all cases, understanding and analyzing this metric equips HR leaders to make data-driven decisions that drive long-term success.
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A better cost-per-hire rate? High employee retention

Calculating your cost per hire is essential for making strategic hiring decisions and optimizing recruitment expenses. Breaking down your internal and external costs gives you detailed insights into your budget and helps reveal areas for potential savings. 

However, improving employee retention is the most effective way to minimize hiring expenses. 

With Leapsome’s all-in-one HR platform, you can:

• Enhance employee engagement through employee recognition and surveys
  
  
• Support growth with development-focused performance reviews and continuous feedback
  
  
• Optimize processes with automated workflows for seamless HR management

… and much more!

Investing in retention saves money and fosters a happier, more productive workplace. Leapsome empowers you to build high-performing teams that contribute to long-term success.

💰 Investing in your people is the best bet

Leverage insights, invest in development, and increase retention with Leapsome.

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