What is cost per hire?
Cost per hire is the sum of what an organisation spends on recruiting, divided by the number of people it hires. The standard most often cited is ANSI/SHRM 06001.2012, which calculates it as recruiting costs divided by the number of hires.
Cost per hire is also one of the recruitment indicators covered by the ISO 30414 family of standards on human capital reporting, which is why it appears in more and more HR reports to boards.
What goes into the calculation?
External costs: agency fees, job boards, advertising, events, referral bonuses, travel and relocation. Internal costs: the time of recruiters and hiring managers, and the systems used to recruit.
Most organisations count the external costs carefully and the internal ones loosely. The result is a cost per hire that looks low for roles filled internally, because the hours spent interviewing never appear anywhere.
How does cost per hire relate to quality of hire?
They pull in opposite directions if you let them. Cost per hire falls when you use cheaper channels and shorter processes. Quality of hire often depends on exactly the opposite: a deeper search, more assessment, a specialised partner.
A hire that costs little and leaves after six months is expensive. It is simply expensive in a budget line that cost per hire does not read.
What does cost per hire reward, and what can go wrong?
It rewards spending less per hire, and a team judged on it will drift towards the channels that are cheapest per hire rather than best for the role. Agencies get cut first, even for roles where the internal team has no access to the market.
The other blind spot is the empty seat. A role left open for three months costs lost delivery and overtime, none of which enters the formula. For roles that are hard to fill, the cost of vacancy is often larger than any fee. A specialised search changes the cost per hire upwards and the cost of vacancy downwards.
