Hiring is one of the biggest investments any organisation makes, yet many businesses struggle to understand exactly how much it costs to bring in a new employee. Cost per hire is one of the most valuable recruitment metrics because it helps employers measure the efficiency of their hiring process and identify opportunities to improve.
Understanding your cost per hire is about much more than reducing spending. It helps you make informed decisions about recruitment strategies, technology investments and resource planning while ensuring you continue to attract high quality talent.
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What is cost per hire?
Cost per hire measures the average amount your organisation spends to recruit and onboard a new employee.
The metric includes both internal and external recruitment costs, giving you a clear picture of how much each successful hire costs your business.
Tracking cost per hire over time allows organisations to identify trends, compare recruitment channels and assess whether investments in recruitment technology are delivering value.
How to calculate cost per hire
The standard formula is straightforward:
Cost per Hire = Total Recruitment Costs ÷ Total Number of Hires
For example, if your organisation spends £60,000 on recruitment over six months and hires 20 employees, your cost per hire would be:
£60,000 ÷ 20 = £3,000 per hire
While the formula is simple, identifying all recruitment costs requires a more detailed approach.
Internal recruitment costs
Internal costs are often overlooked because they are part of day to day business operations. These may include:
- Recruiter salaries
- Hiring manager time
- Interview panel time
- Employee referral bonuses
- Recruitment software subscriptions
- Careers website maintenance
- Employer branding activities
- Candidate assessment tools
- Onboarding administration
Although these costs may not involve additional spending for every vacancy, they still contribute to the overall investment required to hire new employees.
External recruitment costs
External costs are generally easier to identify and may include:
- Recruitment agency fees
- Job board advertising
- Background checks
- Recruitment marketing campaigns
- Careers fairs and events
- Travel expenses for candidates
- Relocation packages
- External assessment providers
Including both internal and external costs gives a much more accurate view of recruitment spending.
Why cost per hire matters
Calculating cost per hire provides valuable insight into the effectiveness of your recruitment process.
A consistently high cost per hire could indicate issues such as lengthy recruitment cycles, excessive agency use or inefficient hiring processes.
Equally, an extremely low cost per hire is not always positive if it results in poor quality hires or higher employee turnover.
The goal should be to achieve an efficient hiring process while maintaining quality.
What affects cost per hire?
Several factors influence recruitment costs, including:
Hiring volume
Businesses recruiting at scale often benefit from economies of scale, reducing the average cost per hire.
Seniority of the role
Executive and specialist positions usually require more sourcing, longer recruitment timelines and higher advertising costs.
Industry competition
Highly competitive sectors often require increased employer branding investment and broader sourcing strategies.
Recruitment methods
Using multiple agencies and paid advertising channels can quickly increase costs compared with building a strong direct hiring strategy.
Recruitment technology
Modern applicant tracking systems can significantly reduce administrative workload and improve hiring efficiency, helping organisations lower recruitment costs over time.
Cost per hire should not be viewed in isolation
Although cost per hire is an important metric, it should always be considered alongside other recruitment KPIs.
These include:
- Time to hire
- Quality of hire
- Offer acceptance rate
- Candidate satisfaction
- Employee retention
- Source of hire
Looking at these metrics together provides a more complete picture of recruitment performance.
For example, reducing cost per hire by rushing recruitment could lead to poorer hiring decisions and higher turnover, ultimately costing the business more.
How recruitment software supports lower hiring costs
Many of the biggest recruitment costs come from manual administration, duplicated effort and inefficient processes.
An applicant tracking system helps eliminate these challenges by centralising recruitment activity and automating routine tasks.
Occy’s ATS is designed to help businesses manage vacancies, track applicants, automate communications and gain valuable recruitment insights from a single platform. By reducing repetitive work and improving collaboration between recruiters and hiring managers, organisations can make faster, better informed hiring decisions while keeping recruitment costs under control.
Cost per hire is more than a finance metric. It is a valuable indicator of how efficiently your organisation recruits new talent.
By understanding where recruitment budgets are being spent and identifying opportunities to improve, employers can create a hiring process that is both cost effective and candidate friendly.
Using recruitment technology such as Occy makes it easier to measure performance, automate repetitive tasks and build a more efficient recruitment process that supports long term business growth.