Last updated: May 2026
Quick Answer
To calculate Cost Per Hire, add all external recruiting expenses (ads, agencies) to all internal costs (interview time, onboarding, training) and divide by the number of hires. The SHRM national average is $4,700 per hire, but specialized roles often cost 20–30% of the position's annual salary.
Key Takeaways
- ✓ Internal time is the hidden cost: A manager spending 10 hours interviewing 5 candidates at $60/hr adds $600 to your hiring cost.
- ✓ Agency fees dominate: Using an external recruiter at 20% for a $100k role adds $20,000 to the cost of a single hire.
- ✓ Retention is cheaper: A high Cost Per Hire emphasizes the financial ROI of retaining the staff you already have.
How to Calculate Your True Cost Per Hire
Most businesses severely underestimate how much it costs to hire someone because they only track the invoice from LinkedIn or Indeed. True cost per hire includes the massive drain on internal resources required to get a new employee to full productivity.
Scenario: "Hiring a Software Engineer"
A tech company needs to hire a Mid-Level Engineer at a $120,000 base salary. They decide not to use an agency to "save money."
The Breakdown
Job Ads: $600 (LinkedIn sponsored slots)
HR Screening Time: $400 (10 hrs at $40/hr)
Engineering Manager Interviews: $1,500 (20 hrs at $75/hr)
Technical Assessments: $300 (Testing platform fees)
New MacBook & Desk Setup: $2,500
Mentor Training Time: $3,000 (40 hrs of a Senior Dev's time)
Total True Cost: $8,300 (6.9% of salary)
While $8,300 seems high, it is highly efficient. If they had used an agency at a standard 20% fee ($24,000), their total cost would have exceeded $30,000.
The Two Types of Hiring Costs
When filling out the calculator, split your expenses into hard (external) and soft (internal) costs:
External Costs (The Checkbook)
- Recruitment Marketing: Job board postings, career fair booths, sponsored social media ads.
- Agency Fees: Contingency or retained search fees paid to external recruiters.
- Screening: Background checks, drug testing, and skill assessment software licenses.
- Candidate Expenses: Reimbursing flights or hotels for out-of-town candidates.
Internal Costs (The Clock)
- Administrative Time: HR staff reviewing resumes, writing job descriptions, and coordinating schedules.
- Interview Time: The hourly rate of every manager and peer who sat in on an interview, multiplied by the hours spent.
- Onboarding & Equipment: Laptops, software seat licenses, uniforms, and IT setup time.
- Training: The lost productivity of the employee who has to mentor the new hire for their first 30 days.
How to Reduce Your Cost Per Hire
If your Cost Per Hire is eating into your profit margins, implement these strategies:
- Build an Employee Referral Program: Offer your staff $1,000 for referring a hired candidate. It is vastly cheaper than paying a $15,000 recruiter fee, and referred candidates stay longer.
- Streamline Interviews: Don't have 5 people interview a candidate if 2 will do. Every person in the room adds to the internal hourly cost of the hire.
- Always Be Recruiting: Don't wait until someone quits to start looking. Build a talent pipeline on LinkedIn so you don't have to pay premium "rush" fees to agencies when you're desperate.
- Invest in Retention: The cheapest hire is the one you never have to make. A 10% raise to keep a top performer is almost always cheaper than the $15,000+ it will cost to replace them. Check your Employee Turnover Rate to see if you have a retention problem.
📋 Cost to Hire an Employee
Break down the recruitment, onboarding, and training costs of a new hire.
Read the Full GuideFrequently Asked Questions
What is Cost Per Hire?
Cost Per Hire is an HR metric that measures the total capital invested to recruit and onboard a new employee. It includes both external costs (like job board fees and recruiter commissions) and internal costs (like the hourly rate of managers conducting interviews).
What is the average cost to hire an employee?
According to the Society for Human Resource Management (SHRM), the average cost per hire in the US is nearly $4,700. However, for specialized, technical, or executive roles, the cost is frequently three to four times the position's monthly salary.
What is a typical recruiter fee?
External recruiters and staffing agencies typically charge a contingency fee of 15% to 25% of the candidate's first-year base salary. For a $100,000 position, the recruiter fee alone would be $15,000 to $25,000.
How do I calculate internal interview costs?
Multiply the hourly rate of the interviewer by the number of hours they spent interviewing candidates for the role. If a manager making $50/hour spends 10 hours reviewing resumes and interviewing candidates, your internal interview cost is $500.
Why is hiring so expensive?
The visible costs (ads and background checks) are small. The invisible costs are massive: hours of lost productivity from managers conducting interviews, a 30-to-90 day ramp-up period where the new hire isn't fully productive, and the risk of a bad hire forcing you to repeat the process.
How can I reduce my cost per hire?
The most effective way is to build an employee referral program. Candidates referred by existing employees are hired faster, require zero ad spend or agency fees, and statistically stay with the company longer, reducing future turnover costs.