Cost per hire is external costs plus internal costs, divided by the hires those costs produced over the same period. The formula is not the hard part. What makes the figure useful or useless is which costs go into the top line and whether the period at the bottom is the one that produced them, and most desks get both slightly wrong in the same direction: they count the invoices they can see and none of the time they spend, then divide by a year that included two hires from a pipeline built the year before. This page sets out what belongs in each half, the two mistakes that flatter the figure, and where the free sheet on this site works it.
The calculation, stated plainly
Add every external cost of hiring in the period: agency fees, job board and advertising spend, sourcing tool licences, assessment and background check fees, referral bonuses, and travel if you pay it. Add every internal cost: the recruiter's or owner's time at their real hourly cost, the hiring managers' interview hours, and any share of a system licence that is genuinely for hiring. Divide the total by the number of hires that started in the period. On this site's worked example the answer is $2,800 a hire, of which 54% is agency fees.
The two mistakes that flatter it
The first is leaving internal time out, which is the single largest omission on a small desk: an owner spending six hours a week on hiring is a real cost even though no invoice records it, and a figure that excludes it will always make in house look cheaper than an agency. The second is a mismatched period: dividing this quarter's spend by this quarter's starts counts hires whose pipeline was paid for last quarter. Use a period long enough that the pipeline and the starts overlap, usually a year on a small desk.
External and internal, and why the split matters
Keep the two halves separate as well as summed, because they answer different questions. The external figure is what you could stop paying tomorrow, and it is the one that moves when you change how you source. The internal figure is what hiring costs you in attention, and it is the one that decides whether an agency fee is actually expensive: paying a fee to save forty hours of an owner's time is a different trade from paying it to save a recruiter's. The agency fee sheet on this site works that break even, which on the worked figures falls at 5.7 hires.
What to do with the number once you have it
Compare it to itself over time rather than to a benchmark, because this site publishes no benchmark and the ones you will find are averages over employers who hire nothing like you. A cost per hire that is rising while time to hire falls usually means you are buying speed, which may be exactly right. One that is rising while both time to hire and applicants per hire stay flat means the mix has moved toward agencies without anything getting better, and that is the one to look at.
Questions people ask about how to calculate cost per hire
What is the cost per hire formula?
Total external costs plus total internal costs, divided by the number of hires who started in the same period. The formula is trivial; the work is in deciding what goes into each half and choosing a period long enough that the spend and the starts belong to each other.
Should internal recruiter time be included?
Yes, and leaving it out is the most common way the figure gets flattered. Time spent by an owner or a generalist on hiring is a real cost with a real hourly value, and a cost per hire that excludes it will always make filling a role in house look cheaper than it is.
What period should I use?
Long enough that the spend and the hires it produced fall inside the same window, which on a small desk usually means a year. A quarter divided by that quarter's starts credits hires to a pipeline that was paid for earlier and produces a figure that swings for no real reason.
What is a good cost per hire?
There is no general answer and this site publishes no benchmark, because the averages you will find are taken over employers who hire at a completely different volume and mix. Compare the figure to your own over time, alongside time to hire and applicants per hire, and read the three together.