Cost per hire: the formula, a realistic benchmark, and how to lower it
Ask most founders what it costs to make a hire and you'll get a shrug. The money leaves in scattered pieces, a job board here, hours of your time there, so nobody adds it up. But cost per hire is one of the most useful numbers you can track, because once you can see it, you can lower it. And for a small team where every pound counts, that matters.
Here's the formula, a realistic benchmark, and the levers that bring it down.
The formula
Cost per hire is simple:
Cost per hire = (total internal costs + total external costs) / number of hires
Add up everything you spent to make your hires in a period, then divide by how many people you hired. The work is in counting the costs honestly.
External costs are the easy ones to see: job board fees, advertising, agency fees, background checks, any paid tools, and referral bonuses.
Internal costs are the ones teams forget: the hours your team spent writing posts, reading CVs, screening, interviewing, and scheduling. Put a rough hourly value on that time. For a founder or operations lead, those hours are the most expensive in the building, which is why a "free" inbox process often costs the most.
A realistic benchmark
Published averages float around the few-thousand mark per hire, but that figure comes mostly from large companies with recruiting teams and agency spend. For a small business doing its own hiring, the number swings hugely depending on whether you count your time. The honest benchmark isn't a published average; it's your own number, tracked over time, trending down. Measure it once, then beat it.
What drives it up
Three things quietly inflate cost per hire for small teams:
Your time. Hours lost to manual sorting, scheduling, and chasing are the biggest hidden cost. They don't show on an invoice, so they go unmanaged.
Slow hiring. The longer a role stays open, the more it costs in lost productivity and the higher the chance you lose your top candidate and have to start again.
Wasted reach. Every CV that vanishes in your inbox is spend with nothing to show for it. You paid to attract that applicant, and the application evaporated before anyone read it.
How to lower it
Cut the hours. The fastest way to lower cost per hire is to stop doing clerical work by hand. Automatic scoring, self-booking interviews, and templated emails take the time-heavy parts off your plate.
Hire faster. Closing your slowest stage shortens the whole process, which lowers the cost of an open role and protects you from losing candidates to delay.
Know your best source. Track where your strong candidates come from. If referrals and your careers page outperform a paid job board, stop paying for the board. Most small teams find their best hires come from the cheapest channels.
Lose fewer candidates. A clean process that doesn't drop people means you don't pay twice to fill the same role.
See the number without the spreadsheet
You can't lower a cost you can't see, and pulling these figures together by hand is the reason most teams never bother. When hiring runs in one place, the data comes for free. In KalosHR, your dashboard shows applicant counts and where your candidates come from, so you can spot your cheapest, strongest sources and cut the rest. Because the manual work is built into the tool rather than your week, the biggest hidden cost, your time, drops on its own.
Cost per hire isn't about being cheap. It's about knowing where your hiring money and hours go, so you can spend both where they work. Measure it once, and you'll never hire blind again.
