What Is Cost-Per-Hire?

Cost-per-hire is defined as a key metric utilised by HR professionals to determine the total cost involved in recruiting a new employee.

Due to covering the total cost, it encompasses all incurred expenses. By doing so, it provides insights into the efficiency and financial impact of the hiring process which is important for many reasons. Mainly, it helps companies to better manage their recruitment budgets. Additionally, resources can be utilised more effectively, and  areas of improvement can be clearly highlighted.

The Cost-Per-Hire Formula

The cost-per-hire formula is simple. This is how it works:

(Internal recruiting costs + external recruiting costs)/total number of hires

Of course, the formula on the surface is more straightforward than it seems. After all, there are various internal and external recruiting costs that need to be factored into the equation. Here is a breakdown of the components:

• Internal recruiting costs: This includes the salaries of recruiting staff, recruitment software, overheads, and other relevant internal resources.
• External recruiting costs: This covers expenses such as job advertisements, job fair participation, background checks, and fees paid to recruitment agencies.
• Total number of hires: The number of employees hired during a defined timeframe.

As an example, say an organisation is working out their cost-per-hire for 2023. Their internal recruiting costs were £60,000, external recruiting costs were £20,000, and they hired 40 employees. This is how the numbers would be added into the formula:

£60,000 + £20,000 = £80,000

£80,000 / 40 = £2,000

This shows that the organisation’s cost-per-hire for 2023 was £2,000. Is that good? Bad? The following section will help to supply an answer.