Cost Per Hire: How to Calculate It and Actually Lower It
SHRM puts the average cost per hire at $4,700. Most companies have no idea what they actually spend. Here is the formula, the benchmarks, and 8 ways to cut that number without cutting corners.
SHRM / ANSI Standard Formula
Internal Costs
Recruiter + Team Time + Software
External Costs
Agencies + Job Boards + Checks
Total Hires in Period
Cost Per Hire
What is cost per hire?
Cost per hire (CPH) measures the total money spent to fill a single open position. It includes every dollar from the moment you decide to hire until the new employee starts.
The metric was standardized by SHRM and the American National Standards Institute (ANSI) in 2012. Before that, every company calculated it differently, making benchmarking nearly impossible.
The formula splits costs into two buckets: internal (your team's time, tools, overhead) and external (agencies, job boards, background checks). Add them up, divide by total hires. That is your CPH.
Simple in theory. In practice, most companies undercount by 30-40% because they forget to include interview time, internal referral bonuses, or the cost of their applicant tracking system.
How to calculate cost per hire (SHRM/ANSI method)
The SHRM/ANSI standard formula is straightforward:
CPH = (Internal Costs + External Costs) / Total Hires
Internal recruiting costs
External recruiting costs
Example calculation
Your company spent $45,000 on internal recruiting costs and $25,000 on external costs last quarter. You made 15 hires. Your cost per hire: ($45,000 + $25,000) / 15 = $4,667 per hire.
Typical Cost Per Hire Breakdown
Cost per hire benchmarks by company size and role
The $4,700 SHRM average is useful as a starting point. But your actual benchmark depends on your company size, industry, and the roles you hire for.
Smaller companies pay more per hire because they lack volume discounts, dedicated recruiting teams, and established employer brands that attract organic applicants. Enterprise companies spread fixed costs across hundreds of hires per year.
Cost Per Hire Benchmarks (2025-2026)
1-50 employees
Higher per-hire, fewer hires
51-250 employees
SHRM average benchmark
251-1,000 employees
Economies of scale
1,000+ employees
Dedicated TA teams, volume
Executive roles
Search firms, longer cycles
Technical roles
Sourcing premium, competition
Sources: SHRM Human Capital Benchmarking Report, SHRM Talent Acquisition Benchmarking Report
Costs most companies forget to count
The biggest CPH mistakes are not math errors. They are omissions. Here are the costs that quietly inflate your real number.
Hiring manager time
A hiring manager earning $150K spends roughly 15 hours per hire on job descriptions, interviews, and debriefs. That is $1,080 per hire in time alone. Most companies count zero of this.
Team interview panels
Four engineers doing 45-minute interviews each, across five candidates, equals 15 hours of engineering time. At $100/hour loaded cost, that is $1,500 per hire.
Vacant position cost
Every day a role sits open costs money in lost productivity, overtime for the team covering it, and delayed projects. The U.S. Department of Labor estimates this at 1-3x the daily salary of the role.
Bad hire cost
A bad hire costs 30% of the employee's first-year salary according to the U.S. Department of Labor. For a $100K role, that is $30,000 wasted. This does not show up in CPH but directly relates to it.
Recruiter context switching
Recruiters juggling 20+ open reqs lose hours daily to context switching. Studies show it takes 23 minutes to refocus after an interruption. Fewer reqs per recruiter means faster, cheaper hires.
8 proven ways to lower your cost per hire
Cutting CPH does not mean cutting quality. The best way to reduce hiring costs is to hire faster, hire right the first time, and stop paying for things that do not work.
Employee referrals
Up to 50% lower CPH
AI screening
70% less manual review
Faster pipeline
30% lower time cost
Better job posts
2x qualified applicants
Build an employee referral program
Referred candidates cost 50% less to hire than job board candidates, according to SHRM research. They also start faster (29 days vs 39 days average) and stay longer (46% retention at year one vs 33% for job boards).
The math is simple. A $2,000 referral bonus replaces $5,000-8,000 in agency fees and job board spend. Your employees already know the culture, the role requirements, and who in their network would fit.
Keep the program simple. A clear bonus structure, fast payouts (within 30 days of hire start), and regular reminders about open roles. Complicated programs with delayed payouts get ignored.
Automate resume screening with AI
Manual resume screening is the biggest hidden cost in recruiting. A recruiter spending 6-7 seconds per resume, across 250 applications per role, burns 25+ hours per hire on screening alone.
AI resume screening handles this in minutes, not days. It reads every resume completely (not just keyword matching), ranks candidates against your actual requirements, and surfaces the top 10-15% for human review.
The cost savings compound fast. At 10 hires per quarter, cutting screening time from 25 hours to 2 hours per role saves 230 hours of recruiter time. At a $50/hour loaded cost, that is $11,500 per quarter back in your budget.
Write better job descriptions
A vague job description attracts unqualified candidates. Every unqualified application costs time to screen, respond to, and reject. Multiply that across hundreds of applicants and you have a serious cost problem.
Better job descriptions act as a filter. They attract people who can actually do the job and deter those who cannot. Include specific requirements, salary ranges, and realistic day-to-day responsibilities.
Companies that include salary ranges in job postings see 30% more qualified applicants, according to LinkedIn research. More qualified applicants means fewer screening hours, fewer interviews, and faster hires.
Reduce your time to hire
Time and cost are directly correlated in recruiting. Every extra week a role stays open costs you in recruiter time, hiring manager attention, job board renewals, and lost productivity from the vacancy.
The average time to hire is 44 days. Companies that cut it to 25-30 days report 20-30% lower cost per hire. The biggest time savings come from structured interview processes, pre-built scorecards, and automated scheduling.
Eliminate unnecessary interview rounds. Four rounds for a mid-level role is excessive. Two to three rounds with clear evaluation criteria per stage is enough to make a confident decision.
Use structured interviews to hire right the first time
Bad hires are the most expensive recruiting mistake. They cost 30% of the employee's annual salary (U.S. Department of Labor estimate) and restart the entire hiring process from zero. Your CPH effectively doubles.
Structured interviews predict job performance 2x better than unstructured conversations. They use the same questions, the same scoring rubric, and objective criteria. The result: better hires and fewer expensive do-overs.
Build scorecards before you start interviewing. Define what "great" looks like for each criterion. Train your interviewers on the rubric. This takes two hours of setup and saves thousands in avoided mis-hires.
Build a talent pipeline before you need it
Reactive hiring is expensive. When a role opens and you start from scratch, you pay for urgency. Job boards charge more for "urgent" postings. Agencies charge higher fees for rush searches. Your team makes faster, riskier decisions.
A proactive talent acquisition strategy keeps a warm pipeline of candidates for roles you hire regularly. When a position opens, you already have qualified people to reach out to.
Use your ATS to tag promising candidates who were not selected for previous roles. Nurture them with company updates and new opportunity alerts. When their role opens, you skip the sourcing phase entirely.
Audit your job board spend
Most companies spray job postings across every board and hope for the best. They have no idea which boards produce quality applicants and which just generate noise.
Track source-of-hire data for every position. Calculate cost per quality applicant by source, not just cost per applicant. A job board that sends 200 applicants with 2 qualified candidates is worse than one that sends 30 applicants with 8 qualified ones.
Cut the underperforming boards. Reallocate that budget to sources that produce hires. Most companies find that 2-3 sources generate 80% of their quality candidates.
Replace agency hires with AI sourcing
Staffing agencies charge 15-25% of a new hire's first-year salary. For a $100K role, that is $15,000-25,000 per placement. It is the single largest line item in most companies' external recruiting costs.
AI sourcing tools scan millions of candidate profiles, match them against your requirements, and deliver ranked shortlists. The cost: a fraction of a single agency fee. Prepzo's AI Sourcing finds and ranks candidates from public professional profiles, giving your team a head start without the agency markup.
You do not need to eliminate agencies entirely. Keep them for executive searches and niche roles where their networks add real value. But for standard hires, AI sourcing pays for itself after the first placement.
How to track cost per hire over time
A single CPH snapshot tells you very little. The real value comes from tracking the metric quarterly, segmenting by department, role level, and source.
Set up a simple tracking system in your ATS or a spreadsheet. For each hire, record: total internal costs allocated, total external costs, source of hire, time to fill, and whether the hire was retained at 90 days.
Review the data quarterly. Look for trends. Is CPH rising for engineering roles? Are agency hires increasing? Is one recruiter consistently filling roles at lower cost? Use these insights to adjust your strategy.
The goal is not the lowest possible CPH. It is the lowest CPH that still produces quality hires who stay. Track cost per hire alongside quality of hire and 90-day retention to get the complete picture.
Lower your cost per hire
Start freeFrequently asked questions
What is the average cost per hire in 2026?
According to SHRM's benchmarking data, the average cost per hire across industries is approximately $4,700. However, this varies significantly by role type, company size, and location. Technical roles often exceed $8,000, while executive hires can top $14,000.
What counts as an internal vs external recruiting cost?
Internal costs include recruiter salaries, hiring manager interview time, ATS software fees, and employee referral bonuses. External costs include job board fees, staffing agency commissions, background check services, relocation packages, and signing bonuses.
How do you calculate cost per hire?
Use the SHRM/ANSI standard formula: (Total Internal Recruiting Costs + Total External Recruiting Costs) divided by Total Number of Hires in the measurement period. Track all costs over a consistent time frame, typically quarterly or annually.
Does a lower cost per hire always mean better recruiting?
No. Cost per hire is one metric among several. Cutting costs by posting only on free job boards might save money but reduce candidate quality. Always measure cost per hire alongside quality of hire, time to fill, and new hire retention rate.
How can AI reduce cost per hire?
AI reduces cost per hire by automating resume screening (cutting manual review time by 70-80%), conducting initial candidate assessments, identifying top candidates faster, and reducing reliance on expensive staffing agencies. Companies using AI-powered ATS platforms report 30-50% reductions in overall hiring costs.
