The SHRM/ANSI cost per hire formula is straightforward: add your total internal recruiting costs to your total external recruiting costs, then divide by the total number of hires in that period. It measures the average cost of filling one role, provided you count both sides consistently and align the numerator and denominator to the same timeframe. The rest comes down to what you include, how you count staff hours, and what benchmark you compare it against.
TL;DR:
- The cost per hire formula includes internal costs like recruiter hours and referral bonuses, and external costs such as agency fees and job ads, prorated appropriately.
- Internal recruiting costs should exclude new hire salaries and onboarding expenses, focusing only on sourcing, screening, and interview-related efforts.
- External costs must be accurately allocated across roles and periods, with retainer fees counted fully and contingency fees assigned when placements occur.
- Segmenting CPH by role type and seniority provides more meaningful insights than using a general industry benchmark, especially when paired with metrics like recruiting cost ratio.
- Consistent documentation of counting rules and pairing CPH with quality-of-hire data ensures reliable budget planning and performance evaluation.
Table of Contents
- Cost per hire formula explained with a worked example
- What internal recruiting costs to count
- What external recruiting costs to count and how to allocate them
- A step-by-step checklist for calculating cost per hire
- How to interpret your cost per hire number
- Common mistakes that distort your cost per hire figure
- Building a spreadsheet or choosing a calculator
- Why cost per hire is only half the budgeting picture
- What actually matters when you use this metric
- A flat-fee alternative to variable agency costs
- Sources
- FAQ
Cost per hire formula explained with a worked example
The formula itself is simple. It’s what goes into each half that trips people up.
CPH = (Total internal recruiting costs + Total external recruiting costs) ÷ Total number of hires
Internal costs cover the time your own people spend recruiting: recruiter hours, hiring manager interviews, referral bonuses. External costs cover money paid outside the business: job ads, agency fees, background checks, and often require AI-driven candidate matching tools to optimize sourcing and reduce external ad spend. Both figures need to come from the same defined reporting period, whether that’s a quarter or a full financial year. Mixing a quarter of internal costs with a year of external invoices produces a number that looks precise and means nothing.
The denominator matters just as much. “Total hires” should mean people who started, not offers extended or accepted. If three offers were made but one candidate withdrew before starting, your denominator is two, not three.
Here’s a simple example:
- Internal costs for the quarter: $18,000 (recruiter and hiring manager time, ATS licence share, referral bonuses paid)
- External costs for the quarter: $32,000 (agency fees, job board ads, assessment tools, background checks)
- Total hires who started in the quarter: 10
- Calculation: ($18,000 + $32,000) ÷ 10 = $5,000 cost per hire
If your business made zero hires in the period, the formula breaks. Don’t report a CPH of zero. Report the total spend and flag that no hires were completed. A blended average across roles that cost $1,500 to fill and roles that cost $15,000 also hides more than it reveals, which is why segmentation matters later in this piece.
What internal recruiting costs to count
Internal costs are the hardest part of this calculation because they’re rarely itemised anywhere. Nobody sends you an invoice for the three hours a sales manager spent interviewing candidates. You have to build that figure yourself, and most organisations either skip it entirely or guess.
Categories to include:
- Recruiter and HR team hours spent sourcing, screening, and coordinating interviews
- Hiring manager and interview panel time
- Employee referral bonuses paid out
- ATS or recruitment software costs, prorated to the relevant hires
- Employer branding spend directly tied to attracting candidates (careers page updates, recruitment marketing)
To value time, use a loaded hourly rate: base salary plus superannuation and on-costs, divided by standard working hours in a year. If a hiring manager on $130,000 (loaded) works roughly 1,850 productive hours annually, their loaded rate is about $70 an hour. Four hours of interviews across a hiring round costs $280 in internal time, even though no invoice was ever raised for it.
Pro Tip: Build a simple time log template for interview panels. Even rough estimates in 30-minute blocks beat no data at all, and the habit pays off the moment someone asks you to justify the number.
Exclude the new hire’s salary, onboarding costs, and training. Those are employment costs, not recruiting costs, and folding them in inflates the denominator’s cousin metric and confuses two entirely separate budget lines.
What external recruiting costs to count and how to allocate them
External costs are usually easier to find because they arrive as invoices. The challenge is allocating them correctly when one invoice covers multiple roles or spans more than one reporting period.
Standard external cost categories:
- Job board postings and sponsored listings
- Recruitment agency or search firm fees
- Psychometric and skills assessment tools
- Background checks and reference verification
- Candidate travel and relocation costs
- Recruitment events, career fairs, or sponsorship costs tied to hiring
Allocation gets messy fast. A $6,000 job board subscription covering 20 open roles over a year shouldn’t be dumped entirely into one quarter’s CPH. Prorate it. Divide the annual fee across the number of roles or months it actually serviced, and apply only the relevant share to the period you’re reporting on.
Retainer fees paid to a search firm regardless of outcome should be counted in full for the period paid, since the cost is incurred whether or not a hire results. Contingency fees, paid only on successful placement, get counted in the period the placement lands, not when the search began. This is also where hidden costs in traditional recruitment tend to surface, since variable percentage fees can swing wildly between similar roles depending on final negotiated salary.
Candidate travel and ad campaign spend are the two most commonly misattributed lines. If a campaign ran across three roles, split the cost proportionally rather than assigning the whole amount to whichever role filled first.
A step-by-step checklist for calculating cost per hire
Work through these steps in order and you’ll end up with a number you can defend in an audit, not just a spreadsheet cell.
- Fix your reporting period first. Quarter, half-year, or financial year, decide before you start pulling numbers, and use it consistently every time you report.
- Define who counts as a hire. Started employees only, including failed searches’ costs even if no hire resulted from that specific search.
- Gather every internal time estimate. Recruiter hours, interview panel hours, referral payments, and convert each to loaded cost.
- Collect every external invoice for the period. Job boards, agency fees, assessments, background checks, prorating any that span multiple periods or roles.
- Total both sides separately, then add them together, checking that every line item sits inside the same reporting window.
- Divide by total hires who started in that period.
- Sanity check the result. Compare it against the prior period’s CPH, and spot check one or two individual roles manually to see if the blended figure roughly matches reality.
That last step catches more errors than any other. If your blended CPH is $4,200 but you know for a fact one executive search alone cost $18,000 in agency fees, something in your role mix or your period alignment needs a second look.
How to interpret your cost per hire number
A single CPH figure without context tells you almost nothing. Published benchmarks vary enormously because most of the cost sits in internal time, and organisations count it inconsistently from one survey to the next. Comparing your blended average against a generic industry number is comparing two things that were never measured the same way.
The fix is segmentation. Break CPH down by role family and seniority, for example:
- Entry-level and administrative roles
- Mid-level specialist and technical roles
- Senior technical or professional roles
- Executive and leadership roles
Each bucket will have a genuinely different cost profile, and tracking them separately gives you actionable diagnostics rather than one blended number that hides which role types are actually expensive to fill.
A complementary metric worth adding is Recruiting Cost Ratio (RCR), which relates total recruiting spend to first-year salary rather than to a flat headcount. RCR is particularly useful for senior roles, where a $15,000 CPH might be entirely reasonable against a $220,000 salary but alarming against a $65,000 one.
If CPH looks unusually high for a bucket, check whether agency fees spiked, whether the search failed and restarted, or whether one large invoice got misallocated into a single quarter. If it looks unusually low, check that internal hours weren’t simply left out. Pair CPH with vacancy days and time to hire so a cheap hire that took five months doesn’t get mistaken for an efficient one.
Common mistakes that distort your cost per hire figure
Most CPH errors come from inconsistent counting rather than bad arithmetic.
- Including the new hire’s salary or onboarding costs in the numerator, which conflates recruiting cost with employment cost
- Counting interviewer time for some roles but not others, which skews comparisons between hiring rounds
- Allocating a multi-role invoice entirely to one hire instead of splitting it proportionally
- Leaving out failed searches, when the cost was incurred even though no hire resulted, which understates the true cost of poor sourcing
- Changing counting rules between periods without documenting the change, making trend comparisons meaningless
Write your counting rules down once, in plain language, and reuse them every reporting period. That single habit prevents most of the disputes that come up when someone questions the number months later.
Building a spreadsheet or choosing a calculator
You don’t need specialised software to start tracking cost per hire properly. A spreadsheet with five columns does the job: cost category, amount, reporting period, allocation basis (full cost, prorated, or split across roles), and hire ID. Sum by period, divide by hires started in that period, and you have an auditable trail that lets anyone check your working later.
If you’d rather use a calculator, look for one that handles proration of shared costs, calculates RCR alongside CPH, and lets you export segmented results by role family. Several HR analytics platforms now build proration and percentage splits directly into their calculators. Whichever tool you choose, run one manual spreadsheet calculation alongside it first. If the two numbers don’t match, the calculator’s assumptions about what counts as internal versus external are probably different from yours.
Why cost per hire is only half the budgeting picture
A low cost per hire feels like a win until the hire doesn’t work out. The Recruitment Alternative estimates a bad hire can cost roughly 30 to 150 percent of that employee’s annual salary once you factor in lost productivity, retraining, and the cost of running the search again. That’s a useful planning input alongside CPH, not a replacement for it.
When budgeting for a hiring round, weigh the risk of a mis-hire against the CPH you’re targeting. A business chasing the lowest possible external-cost line by cutting corners on assessment or reference checks can end up paying far more later. Replacing a variable agency fee, often a percentage of salary, with a fixed fee also changes your external-cost line from an unpredictable variable into a fixed, forecastable number, which makes budget planning considerably easier for finance teams comparing quarters.
What actually matters when you use this metric
The biggest misuse of cost per hire is treating it as a scorecard for recruiters rather than a planning input. A recruiter chasing a lower CPH by skipping reference checks or rushing a search isn’t cheaper, they’re shifting cost downstream to the cost of a bad hire, and that number is almost always larger.
What matters is documentation and consistency. Write your counting rules down, apply them the same way every period, and always report CPH next to a quality-of-hire signal, whether that’s retention at six months or hiring manager satisfaction scores. A number without that pairing tells you the price. It doesn’t tell you what you bought.
— Josh Townsend
A flat-fee alternative to variable agency costs
Once you’ve built your own cost per hire figure, the external-cost line is usually where the biggest swings show up, particularly if you’re using agencies charging a percentage of salary. A flat fee set upfront can replace variable fees, so an external-cost line becomes a known number rather than a moving target tied to candidate salary negotiations.
This model tends to suit small teams making repeat hires, businesses working to a strict annual hiring budget, or anyone tired of recalculating their CPH every time a placement fee changes with the offer. Some fixed-fee recruitment models include candidate replacement cover in the first two to three months, which softens the financial risk if a hire doesn’t work out. If your current CPH is being driven up by unpredictable agency percentages, it’s worth comparing that spend against a flat-fee recruitment structure and checking the simple pricing tiers to see what a fixed fee would look like against your own hiring volume.
Sources
For a deeper technical reference, the SHRM/ANSI cost-per-hire standard sets out the formal definitions behind this formula. Recruitee’s practical guide walks through worked examples with template suggestions, and X0PA’s calculator applies the ANSI/SHRM standard with built-in proration if you want to check your manual figure against a tool.
- How To Calculate Cost Per Hire for More Efficient Recruiting | Indeed
FAQ
How do I calculate cost per hire?
Add total internal recruiting costs to total external recruiting costs for a defined period, then divide by the total number of hires who started in that period, following the SHRM/ANSI formula.
How do I count internal recruiting hours in cost per hire?
Convert recruiter and hiring manager time to a loaded hourly rate (salary plus on-costs divided by annual working hours), then multiply by hours spent on that hiring round, prorated across the reporting period.
What is the 80/20 rule in recruiting?
There’s no single agreed definition tied specifically to cost per hire; in general hiring contexts it’s often used loosely to suggest a large share of recruiting outcomes come from a small share of sourcing channels or effort, so treat any specific percentage claim with caution.
What is the formula for calculating cost per hire?
CPH = (Total internal recruiting costs + Total external recruiting costs) ÷ Total number of hires, calculated over one consistent reporting period as defined by the SHRM/ANSI standard.
Should failed searches be included in cost per hire?
Yes. Costs incurred on a search that didn’t result in a hire still belong in the numerator, because leaving them out understates the true cost of low success rates in your sourcing strategy.
What’s a reasonable cost per hire benchmark?
There isn’t one universal figure worth trusting, since benchmarks vary by role seniority and how consistently organisations count internal time; segmenting your own CPH by role family and seniority gives a far more useful comparison than any blended industry average.
