What is Cost Per Hire?
Cost Per Hire (CPH) is a key recruitment metric used to calculate the total cost associated with hiring a new employee. It includes all expenses incurred during the recruitment process, from advertising a job to onboarding the new hire. This metric helps organizations understand the efficiency of their hiring process, budget allocation, and overall return on investment in talent acquisition.
Formula for Cost Per Hire
The standard formula to calculate Cost Per Hire is:
Cost Per Hire = (Total Internal Costs + Total External Costs) ÷ Total Number of Hires
Components of Cost Per Hire
- Internal Costs:
These are the expenses incurred within the organization for hiring. Examples include:
- Salaries of HR and recruitment staff.
- Time spent by managers in interviews.
- Training and onboarding materials.
- Technology costs for Applicant Tracking Systems (ATS) or other recruitment tools.
- External Costs:
These are expenses paid to third parties or external vendors. Examples include:
- Job advertising fees (online platforms, newspapers, etc.).
- Recruitment agency fees or headhunter costs.
- Background checks and pre-employment tests.
- Travel expenses for candidates (if reimbursed).
How HR teams use this term
HR teams usually use Cost Per Hire when they write policies, explain employee communication, review payroll or leave records, or keep employee data clean in an HRMS.
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