Cost per hire measures how much your company spends to recruit a new employee. It is calculated by adding internal and external recruitment costs during a specific period, then dividing the total by the number of hires made during that period.
Understanding this metric helps you build more accurate recruitment budgets, compare sourcing channels, and identify where your hiring process is becoming unnecessarily expensive.
What is the Cost Per Hire?
Cost per hire refers to the total amount of money a company spends to recruit and onboard a new employee. It goes far beyond job advertising fees and includes both direct and indirect expenses incurred throughout the recruitment process.
In simple terms: Cost per hire = all expenses related to attracting, selecting, hiring, and onboarding a new employee
These costs can vary widely depending on industry, role complexity, seniority level, and hiring methods.
Key Components of Hiring Cost
Hiring costs are made up of several direct and indirect expenses that occur throughout the recruitment and onboarding process.
1. Advertising
Advertising cost includes all expenses related to promoting job openings to attract candidates. This may involve posting jobs on online job boards, social media platforms, company career pages, or running paid recruitment campaigns.
The cost can increase depending on the competitiveness of the role, the platform used, and the duration of the job posting.
2. Agency Fees
Agency fees are costs paid to third-party recruiters, headhunters, or staffing agencies. These fees are often calculated as a percentage of the hired employee’s annual salary.
While recruitment agencies can speed up the hiring process and provide access to specialized talent, they can significantly increase overall hiring cost if used frequently.
3. Internal HR Time
Internal HR time refers to the cost of hours spent by HR teams and hiring managers on recruitment activities. This includes sourcing candidates, screening resumes, conducting interviews, coordinating schedules, and negotiating offers.
Although not always visible as a direct expense, internal HR time represents a substantial indirect cost, especially for companies with lengthy hiring processes.
4. Background Check
Background check costs cover verification activities such as employment history, education credentials, criminal records, and reference checks. Depending on company policy and regulatory requirements, these checks may be conducted internally or outsourced to third-party providers.
While necessary to reduce hiring risks, background checks add to the total cost per hire.
5. Onboarding
Onboarding costs include all expenses associated with integrating a new employee into the organization. This may involve orientation programs, training sessions, documentation, equipment setup, software licenses, and mentorship time.
Effective onboarding requires investment, but it plays a critical role in improving productivity and employee retention.
6. Relocation
Relocation costs apply when a company hires candidates who need to move to a different city or country. These expenses can include moving allowances, temporary housing, travel costs, visa or immigration support, and family assistance.
Relocation is often necessary for senior or specialized roles, but it can significantly increase the overall hiring cost.
How To Calculate Cost Per Hire Formula
Cost per hire is calculated by dividing the total recruitment expenses by the number of employees hired within a specific period. This metric helps companies understand how much they actually spend to bring in each new employee and evaluate the efficiency of their recruitment process.
To calculate it accurately, organizations need to include both internal and external recruiting costs, as excluding either category can result in an incomplete picture of the true hiring expense.
The commonly used formula for cost per hire is: Cost per hire = (Internal Recruiting Costs + External Recruiting Costs) / Total Number of Hires.
Internal recruiting costs typically include expenses such as HR team salaries allocated to recruitment activities, interview time spent by hiring managers, recruitment software, and onboarding administration.
External recruiting costs cover job advertising, recruitment agency fees, background checks, career events, and relocation expenses.
How to Optimize Hiring Cost
Here’s how to optimize your hiring cost without compromising quality:
1. Improve Recruitment Process Efficiency
Streamlining the recruitment process helps reduce unnecessary time and costs. This can be done by creating clear job descriptions, narrowing candidate requirements, and simplifying interview stages. A shorter time-to-hire means fewer internal HR hours spent and less productivity loss from vacant roles.
2. Strengthen Employer Branding
A strong employer brand attracts more qualified candidates organically. When candidates actively seek out the company, reliance on paid job ads and recruitment agencies decreases, which directly lowers cost per hire. Employer branding also improves candidate quality and long-term retention.
3. Leverage Employee Referral Programs
Employee referrals are often faster and more cost-effective than external hiring channels. Referred candidates tend to have higher cultural fit and retention rates, helping companies reduce repeated hiring costs caused by turnover.
4. Use an Employer of Record (EOR)
For companies hiring internationally, using an employer of record (EOR) can significantly optimize cost per hire. An EOR manages employment compliance, payroll, taxes, and local labor laws, removing the need to establish legal entities in new markets. This reduces administrative, legal, and recruitment costs while accelerating global hiring.
5. Optimize Recruitment Channels
Not all hiring channels deliver the same results. By analyzing performance data from job boards, social media, agencies, and referrals, companies can focus on channels with the highest return on investment and eliminate underperforming ones.
Cost Per Hire Calculation Example
Suppose a company records the following recruitment expenses during one quarter:
| Expense | Cost |
|---|---|
| Recruitment team time | SGD 5,000 |
| Hiring manager interview time | SGD 3,000 |
| Job advertising | SGD 4,000 |
| Recruitment agency fees | SGD 6,000 |
| Background checks | SGD 1,000 |
| Referral bonuses | SGD 1,000 |
| Total recruitment costs | SGD 20,000 |
| Total employees hired | 10 |
The calculation would be:
Cost per hire = SGD 20,000 ÷ 10
Cost per hire = SGD 2,000
The company spent an average of SGD 2,000 to recruit each employee during that quarter.
This company level figure provides a useful starting point, but it does not reveal whether every hire cost approximately the same amount.
For example, the cost per hire for a frequently recruited customer service role may be lower than the cost for a specialized engineering or leadership position. The company should therefore segment the results before deciding whether SGD 2,000 represents efficient spending.
Build a More Cost Efficient Hiring Model
Cost per hire gives you a clearer view of where your recruitment budget is going, but the number alone does not determine whether your hiring strategy is working. The strongest approach balances cost, speed, candidate quality, offer acceptance, and retention.
When hiring across markets, fragmented recruitment, compliance, onboarding, and payroll processes can introduce additional costs that are difficult to track. Glints TalentHub brings these activities together through one unified talent operations solution, helping you source, hire, onboard, pay, and retain professionals with greater cost visibility.
Talk to a TalentHub hiring expert to compare your current hiring setup and identify opportunities to improve efficiency.
