Cost-per-Hire: What It Is and How to Calculate It
Cost-per-hire is the average amount you spend to fill one open role. You calculate it by adding your internal recruiting costs to your external recruiting costs, then dividing the total by the number of hires made in the same period. If you spent ₹1,75,000 in a month and made 7 hires, your cost per hire is ₹25,000.
The formula is easy. The hard part is deciding what counts as a cost. Recruiter salaries, portal subscriptions, referral bonuses, background checks and agency fees all belong in the number, and most teams leave out at least half of them. A figure that ignores recruiter time is almost always too low.
This guide covers why the metric matters, how to calculate it with a worked example in rupees, which benchmarks to compare against, and how to bring the number down. It is written for recruiters at Indian agencies and in-house teams who source through Naukri, LinkedIn and spreadsheets. Olibr is a free recruiting platform built around those workflows, so a few examples show how that setup removes recurring costs.
Why cost-per-hire matters
Cost-per-hire matters because it is the only number that tells you what each placement really costs, so you can budget, price and spot waste before it compounds.
It turns hiring into a budget you can plan
Once you track the metric for a few months, forecasting becomes arithmetic. If your average is ₹25,000 and a client plans 40 hires next quarter, you need about ₹10,00,000 set aside. Without the number, you guess, and guesses run low.
In-house teams also use it to decide when an agency is worth paying. Assume an agency charges 15% of a ₹8 LPA salary. That is ₹1,20,000 for one hire, against your in-house average of ₹25,000. The comparison is rough, because senior roles cost more in-house too. It still tells you which roles deserve an agency and which do not.
It shows margin and leaks
For a staffing agency, cost per hire is the cost side of every placement. If you earn an average of ₹40,000 per placement and spend ₹25,000 to make it, you keep ₹15,000 before rent and overheads. That is a thin margin, and you only see it when you measure.
The blended number hides the leaks, so split it. Calculate it by:
- Role family, such as tech, sales or BPO
- Sourcing channel, such as Resdex, LinkedIn, referrals or walk-ins
- Recruiter
- Client
A portal plan that produces one hire a month is a leak, and the split is what reveals it.
Cost per hire tells you whether a placement made money or only made work.
How to calculate cost per hire step by step
To calculate cost per hire, total every internal and external recruiting cost for a period, then divide by the number of people who joined in that period.
The formula and what to include
The standard formula, used in the ANSI/SHRM cost-per-hire standard, is:
Cost per hire = (Internal costs + External costs) ÷ Total hires
Internal costs are what your own payroll and time cost you. External costs are what you pay outside parties.
| Internal costs | External costs |
|---|---|
| Recruiter salaries and incentives for time spent hiring | Job portal and Resdex subscriptions |
| Hiring manager interview time | LinkedIn seats and job ads |
| Employee referral bonuses | Agency or headhunter fees |
| Recruiter training | Background verification |
| Internal tools and software | Assessment tests, ATS fees, relocation |
Shared costs need an allocation. If a recruiter spends half the month on hiring and half on onboarding, count half the salary.
A worked example: 7 hires in one month
Take an agency team with two recruiters. The figures below are illustrative.
| Line item | Amount |
|---|---|
| Recruiter salaries (2 × ₹35,000, fully on hiring) | ₹70,000 |
| Hiring manager interview time | ₹15,000 |
| Referral bonuses (2 × ₹10,000) | ₹20,000 |
| Internal total | ₹1,05,000 |
| Resdex and portal subscriptions | ₹30,000 |
| LinkedIn seat | ₹25,000 |
| Background verification (7 × ₹1,500 minus 1 repeat, rounded to ₹9,000) | ₹9,000 |
| Assessment tools | ₹6,000 |
| External total | ₹70,000 |
Total cost is ₹1,75,000. Divide by 7 hires and you get ₹25,000 per hire. On a 6 LPA hire, that is about 4% of first-year salary.
Count every rupee of recruiter time, because salaries are usually the biggest line in the number.
Averages, hire counts and the cost per hire ratio
When you want an average cost per hire across teams, add all costs and divide by all hires. Do not average the averages. If one department spends ₹1,00,000 for 5 hires (₹20,000 each) and another spends ₹80,000 for 2 hires (₹40,000 each), the simple average says ₹30,000. The true figure is ₹1,80,000 ÷ 7, or about ₹25,714.
Count a hire when the person joins, not when they accept the offer. In India, notice periods of 30 to 90 days mean offer drop-outs are common. A drop-out costs you sourcing and screening money and produces no hire, so it pushes the number up, as it should. Some people call the result a cost per hire ratio. It is really a rupee amount, but dividing it by first-year salary gives you a percentage you can compare across roles. A two-column spreadsheet works as your calculator. Put internal costs in B2:B4, external costs in B6:B9 and hires in B11:
=(SUM(B2:B4)+SUM(B6:B9))/B11
What a good cost per hire looks like
A good cost per hire is one that stays flat or falls while quality and speed hold, and that sits inside the usual range for the roles you fill.
Benchmarks by role type
Published estimates for India vary by source, so treat them as rough ranges for orientation, not targets.
| Role type | Typical cost per hire (India) |
|---|---|
| Standard positions | ₹25,000 to ₹50,000 |
| IT and technology | ₹35,000 to ₹80,000 |
| Healthcare and pharma | ₹30,000 to ₹70,000 |
| Manufacturing | ₹20,000 to ₹45,000 |
| Retail and e-commerce | ₹20,000 to ₹30,000 |
| Senior and leadership | ₹2 lakh to ₹12 lakh and above |
US figures run from about $1,500 to $5,000 for entry-level roles at small companies, up to $7,000 to $15,000 for mid-level hires at mid-sized firms. Leadership hiring sits at the top of any range because search fees dominate the cost.
How to judge your own number
Compare yourself to your own history first. Your last four quarters, split by role family, say more than any benchmark. A ₹25,000 average is high for retail volume hiring and low for niche tech roles, so a blended figure can mislead.
A rising number is not automatically bad. If cost per hire climbs while time-to-fill drops and fewer candidates drop out after offer, you may simply be spending on harder roles. A rising number with slower hiring is the real warning.
Judge cost per hire against your own history and role mix, not against a single industry average.
How to reduce cost per hire
You reduce cost per hire by cutting recurring spend, filling roles faster, and losing fewer candidates after the offer.
Cut recurring and duplicate spend
Start with an audit of every subscription and seat. Check which portal plans produced joiners last quarter, and drop the ones that did not. Then reuse the candidates you already have before buying fresh views, since an old CV folder often holds a match for a new requirement. Referral bonuses are usually cheaper than agency fees for non-leadership roles. Keep agencies for the roles you genuinely cannot fill.
Software is a fixed cost worth checking. Olibr's ATS, job posting, candidate database and candidate search are free, with no subscription fee; access is kept by contributing 50 candidate profiles per active user every 30 days, and AI features are paid per use. You keep access by contributing 50 candidate profiles per active user every 30 days. Bulk CV parsing costs ₹1 per CV after the first 50 free per company, and AI video interviews are paid from a wallet you top up. Either way, the point is to know what each tool adds to your numerator.
Shorten time-to-fill and protect offers
Every extra week a role stays open adds recruiter hours and ad spend. Rank candidates against the job description before you read CVs one by one. AI matching and filters on skills, experience, location, salary range and notice period cut the screening pile quickly.
Protect offers as well. A drop-out sends you back to sourcing, so keep two warm backups for each role and stay in touch through the notice period. Track cost per hire by stage, and you will see whether money leaks at sourcing, screening or joining.
The cheapest hire is the one you do not have to source twice.
Measure it once, then keep measuring
Cost-per-hire is total internal and external recruiting spend divided by hires made. It is only useful when you include recruiter time, split the number by role and channel, and compare it with your own history. Benchmarks give you a range, and the trend tells you whether you are improving.
Pull last quarter's costs into a spreadsheet and calculate your first number today. If you want a free system that also tracks pipelines and sourcing in one place, create a free recruiter account and run your next requirement through it.
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