The further you can stretch your recruiting budget without compromising hire quality, the better.
Cost per hire (CPH) is one useful recruiting and talent acquisition metric for evaluating recruitment efforts.
Let’s explore this essential KPI, why it matters in high-volume recruiting, and what internal and external factors come into play when determining cost per hire.
What is cost per hire?
Cost per hire is how much companies spend to hire a new employee. This metric gives HR teams an idea of average spend and compares it over various time periods, which can help flag any significant changes.
CPH encompasses all expenses related to hiring an employee, such as salaries, benefits, advertising costs, background checks, travel, onboarding and training, employee referral bonuses, signing bonuses, relocation costs, and legal compliance.
Why is cost per hire an important metric?
Measuring cost per hire is useful when creating or monitoring your recruiting budget. The average cost per hire is $4,700, which adds up—particularly in high-turnover industries like retail, transportation, manufacturing, and restaurants (where the turnover rate was 86.3% in 2021).
For high-volume hiring organizations, it's even more critical to keep an eye on cost per hire. These industries rely on a regular stream of workers to stay running, so analyzing cost per hire can help high-volume recruiters assess the effectiveness of their talent acquisition strategy at scale.
Factors that affect cost per hire
You may find that cost per hire varies between departments—or even between roles in the same department. This is due to several factors, including:
Businesses in less populated locations may have a harder time filling roles due to the smaller candidate pool. As a result, these organizations may have greater hiring expenses, such as:
- Sign-on bonuses to entice more people to apply
- Travel fees for recruiters and/or candidates
- Marketing efforts to advertise the job to a larger geographical area
- Relocation costs for new hires
However, if you’re located in a metropolitan area with a larger candidate pool, the costs above likely won’t apply. More candidates also mean better talent sourcing and a more robust pipeline for future openings—which reduces future recruiting costs.
Competing businesses typically share common employee demographics, customer demands, market standards, and work constraints, so their average cost per hire is about the same. But what’s considered high CPH in one industry may be moderate or low in another.
For example, the national average cost per hire in manufacturing is $5,611 whereas the national average cost per hire in healthcare is only $3,033. Understanding CPH relative to your industry is critical if you want to optimize your recruiting strategy.
Higher-level open positions usually take longer to fill because there is a smaller candidate pool. Hiring for these positions often requires more time screening resumes, multiple interviews, and larger recruiting teams.
This means that more resources and time are dedicated to each open position than is required in high-volume hiring. Job openings for entry-level roles, by contrast, results in a wider candidate pool that typically doesn't require as many steps in the recruiting process.
Shorter, more efficient recruitment processes can streamline hiring and reduce related expenses. Prolonged job vacancies put more strain on businesses—there’s a notable opportunity cost associated with excessive time to fill.
Internal recruiting costs
As mentioned, recruiting costs fall into internal and external categories. Internal recruiting expenses refer to in-house expenses related to current staff or the staff companies are in the process of hiring, including:
Recruitment and talent acquisition
Talent acquisition has many costs and expenses associated directly with recruitment, including resume screening, interviewing, and other factors.
Compensation (salary, bonuses, benefits, etc.)
These costs include the portion of your staff salaries that can be attributed to the recruiting process. Recruiter salaries alone can vary greatly depending on location, experience, and the business. However, the average salary for U.S. recruiters in 2022 is roughly $70,000.
If your business has an employee referral program, you should count those bonuses under this umbrella as well. On the new hire’s side, this is also where you’d consider relocation expenses (if you provide them).
Onboarding and training
Uniforms, training modules, and even instructor fees all fall under this category. However, so do other, less tangible expenses like productivity loss during new employees’ ramp-up period.
Administrative costs during recruitment include any equipment, food, recruiting team and candidate travel, and hotel expenses.
External recruiting costs
External recruiting costs refer to expenses incurred from talent acquisition efforts outside your company, and may include:
Background checks and drug tests
While background checks and drug tests may take time and money upfront, they can also seriously reduce the risk of a poor hire.
This includes advertisements on job boards, social media ads, recruiting events, job fair placement fees, staffing agency fees, and other third-party agency fees.
Applicant tracking systems
Applicant tracking systems keep candidates moving smoothly through the recruitment process, ensuring timely hiring and positive candidate experiences. The cost for this software can vary depending on the pricing model, but usually includes a startup fee plus recurring monthly fees.
How to calculate cost per hire
The standard formula for cost per hire is:
Cost per hire = (Internal hiring costs + External hiring costs) / Total number of hires made
Let’s say that last year you spent $15,000 in internal recruiting costs, $25,000 in external recruiting costs, and you hired 10 people. The calculation would look like this:
Cost per hire = $15,000 + $25,000 / 10
Cost per hire = $4,000
Pros and cons of using cost per hire
CPH can provide you with helpful insights about your recruitment efforts, but it's important to note that it will fluctuate. To get the most value out of this metric, you'll need to monitor it closely over time. Once you have a baseline, it’ll be easier to make adjustments to avoid excessive spending.
While CPH won't tell you everything you need to know about your recruitment strategy, tracking and adjusting your efforts based on this KPI will help maximize the ROI of your recruiting efforts.
- Supports more strategic spending toward more efficient recruitment and talent acquisition
- Identifies otherwise hidden cost savings
- Guides how to adjust and improve your recruitment and talent acquisition processes
- Can distract from the quality of your hires (“you get what you pay for”)
- Some factors (like lost productivity) can be difficult to quantify
Enhance your recruitment and hiring process with Emi
While CPH is complex, the insights yielded by tracking this metric can help companies improve the efficiency and cost-effectiveness of recruitment and talent acquisition.
A significant factor in managing these costs is having a defined hiring process. Using artificial intelligence and machine learning, Emi simplifies recruitment to help quickly fill high-volume frontline roles with the best-fit candidates.