The average total cost of filling a vacancy, covering both external spend and internal effort.
Cost per hire is the average amount an organisation spends to fill one vacancy, calculated by adding all external and internal recruiting costs for a period and dividing by the number of hires made in it. It is the metric most often quoted to justify recruitment technology, and the one most often understated — because the internal half of the cost, the hours managers and recruiters spend, never appears on an invoice.
External costs are the ones you can see on a purchase ledger: agency fees, job board postings, careers-site advertising, assessment tools, background checks, referral bonuses, relocation, and the recruiting share of an applicant tracking system. Internal costs are the ones you have to reconstruct: recruiter salaries apportioned to the period, hiring managers' and interviewers' time, and the administrative work of offers and onboarding.
Cost per hire = (total external recruiting costs + total internal recruiting costs) ÷ number of hires in the period
A team makes 12 hires in a quarter. External spend is £34,000 — two agency placements at £9,000 each, £11,000 in advertising and job boards, and £5,000 in assessments and checks. Internal cost is a recruiter at £13,000 for the quarter plus roughly 120 hours of hiring-manager and interviewer time, which at a £45 fully-loaded hourly cost is £5,400. Total £52,400 across 12 hires gives a cost per hire of about £4,367.
Run the same sum with external costs only and it reads £2,833 — thirty-five per cent lower and quietly wrong. The gap between those two numbers is the entire argument for measuring the metric properly, because it is the internal half that process improvement actually reduces.
Cost per hire is a cost metric, so it improves when you spend less — including when you spend less than you should. Cutting assessment steps, dropping agencies for hard-to-fill roles, or making faster and looser decisions will all push the figure down while quietly raising the cost of the hires themselves. Read it alongside quality of hire and first-year attrition, or you optimise for cheap hiring rather than good hiring.
It is also strongly composition-dependent. A quarter weighted toward senior or specialist roles will show a higher cost per hire than one filled with volume roles, with no change in efficiency at all. Segment by role family and seniority before comparing periods, and treat a single blended company-wide figure as a budgeting input rather than a performance measure.
The companion metric is cost of vacancy — what the unfilled role costs in lost output or coverage for every day it stays open. The two pull against each other in a useful way: spending more per hire to fill a critical role three weeks sooner is often straightforwardly profitable. Looking at cost per hire without cost of vacancy is how recruitment budgets get cut in ways that cost more than they save.
Yes — a referral bonus is a direct external cost of making that hire and belongs in the calculation. Leaving it out makes referral channels look free and distorts any comparison between sourcing channels, which is usually the reason the metric is being calculated in the first place.
Use a fully-loaded hourly cost — salary plus employer on-costs divided by working hours — and multiply by hours logged against hiring activity. It will be an estimate. An explicit, consistently applied estimate is far more useful than omitting the largest controllable component of the metric.
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