There are many ways to recruit staff to your organization. You can employ a hiring manager dedicated to finding and hiring new staff. Your company can deploy your human resources department to bring in and onboard new employees. Another option is to hire a third-party recruitment agency to find the best available talent for your company. Or you can post listings on job boards online yourself and look over the applications. Whichever method you choose, it will cost you something. Even the least labor-intensive recruitment strategies require time and resources. Understanding recruitment costs and learning about the best tools can help you hire more efficiently and effectively.
What Are Recruitment Costs?
Recruitment costs, also called hiring costs, are the financial expenditures that relate to hiring new employees. These costs cover finding and attracting applicants and the process of selecting the best candidates. The process includes reviewing resumes and cover letters, interviewing candidates and evaluating which ones are the most qualified.
Hard Expenses vs. Soft Expenses
When assessing recruitment costs, it’s important to consider both hard and soft expenses. Here’s how to differentiate them:
- Hard recruitment expenses: These are the costs you can link directly to hiring new staff. These expenses include the money you spend on recruiting, interviewing and training new hires. The money you pay to a recruitment agency or to post a job on a website falls under the umbrella of hard recruitment costs.
- Soft recruitment expenses: These are the less tangible costs associated with hiring. This includes how much time you spend on hiring, any negative effects on team morale and any loss of productivity — either from taking too long to fill a position and/or the time it takes to onboard a new hire. Many estimates calculate soft recruitment costs account for the majority of hiring expenditures (a roughly 60–40 split).
How To Calculate Cost-per-Hire
The cost-per-hire is the average cost your organization spends per new hire. You can calculate it with this simple formula:
- Internal recruiting costs + external recruiting costs / total number of hires.
Internal costs are how much you spend within your company. This can include what you pay your hiring manager and/or human resources department or what you pay to staff for referral programs.
External costs are what you pay to others to achieve a new hire. These include the price of posting on job websites and recruiting agency fees.
9 Recruitment Costs Explained
Here are nine recruitment costs you should understand to boost the ROI on your hiring strategy:
Advertising
Many organizations use advertising in their talent acquisition strategies. This could include paid ads on social media, television and radio. But even a less ambitious recruitment process probably involves job postings which may require payment. This counts as an advertising cost.
Employee Referral Programs
Companies often implement referral programs. These typically work by financially rewarding employees if they refer a qualified candidate to the company and that person gets hired. Such a program is probably insufficient to account for an organization’s total recruitment efforts, but it can be an effective way to augment hiring for a comparatively small internal recruiting cost.
Event Costs
Recruiting events are another avenue businesses can pursue as part of their hiring process. This might include setting up a booth at a job fair, a trade show or another industry event. Some companies even host their own events to attract new talent.
In-House Recruitment Costs
This category encompasses internal recruiting and onboarding costs. A fully internal talent acquisition and hiring process means companies can avoid paying recruitment fees to a third party. However, such a strategy may not work for every business. Many organizations find agency fees to be worth the investment. Regardless of the strategy a company chooses, it’s important to include these expenses in the total recruitment cost. For example, some businesses may overlook training costs, but the average cost-per-hire should also take these into account.
Interviewing Costs
Interviewing also costs money. If an organization’s interviewers are salaried HR staff, then it may be difficult to calculate how much the company actually pays them to interview potential employees. It may be worth it, and if a business contracts out its interviewing to a recruitment agency, then it’s part of the external hiring cost. Some businesses compensate candidates for their time during interviews, so this would qualify as an interviewing expense.
Miscellaneous Costs
These costs are particular to a given company and its circumstances and hiring practices. Examples include:
- Compensating new hires to relocate
- One-time benefits payments (such as a signing bonus)
- Paying a website developer to create a new page for candidates to apply for work
Recruitment Agency Fees
Recruitment agencies don’t work for free, so if an organization works with one, it must consider the agency fee and any expenses it charges as part of the recruitment budget. There are several reasons why a company might choose to work with a recruiting company. For example, a small business with limited employee churn probably doesn’t have cause to employ a permanent hiring manager. However, they may also have specific requirements of potential candidates, so paying the occasional recruitment fees to find the best new hire is worth it.
At the other end of the spectrum, large companies may choose to work with a third-party recruiter because it makes hiring easier, and they can afford the fees. It’s common for a large business to rely on agencies for its employee recruitment strategy. However, keeping track of new hires and potential candidates and onboarding them still requires effort, money and attention, so even when working with an agency, it’s useful to invest in the right recruitment software.
Recruitment Solutions
Recruiting tools can make hiring easier, more efficient and more effective for organizations of any size. The best recruitment software helps HR teams and recruiters track applications, screen and score candidates and import new hires into internal systems to make onboarding a smooth process.
Time-to-Hire
Time is money, as they say. It’s not wise to rush the hiring process, but the faster a company can find the right potential candidate, interview them, make an offer and hire them, the better. All this goes into the time-to-hire metric: the average time it takes to hire a new employee from creating a job posting to signing a contract.
Recruitment Costs FAQs
Here are some frequently asked questions about recruitment costs:
What Factors Make Hiring More Expensive?
Perhaps the most common culprit of an overly expensive hiring process is a lack of strategy and budgetary guidelines. If an organization doesn’t have a clear idea of what it wants in a candidate, hiring teams can end up wasting time or, worse yet, making a bad hire. This can result in an unacceptably high cost-per-hire ratio.
It’s important to understand the difference between a hard cost and an additional cost. The price to post on a jobs board or an agency fee is a hard cost, and those are easy to understand. But additional costs, such as overtime for an HR or recruiting team, paying candidate expenses or rewriting a job listing, can add up and exceed the original budget.
Why Is Employee Turnover Important?
Employee turnover, also called employee churn, is the average rate at which employees come and go. This can include staff who voluntarily leave and require replacement, firings, layoffs because of downsizing and new hires coming onboard due to company growth.
It’s normal, and indeed necessary, for an organization to have some turnover. How much churn is healthy depends on the business. For example, the more employees a company has, the higher the turnover will be in real numbers, though the rate may be similar to that of a smaller company. High turnover rates can negatively correlate with staff morale. This means unhappy employees may leave the company in high numbers and/or this rate of churn makes employees unhappy.
A very low turnover rate, on the other hand, may indicate a company that’s grown stagnant and a complacent workforce. There’s no universally accepted ideal turnover rate; it depends on what works for each organization.
Should I Work With a Recruitment Agency?
The answer here depends on the circumstances of your company. If you don’t hire new employees often and you’d rather outsource the responsibilities to a trusted recruiting agency, then that’s perfectly fine as long as you budget for it. If you have very technical requirements for your staff or want to headhunt potential candidates from other companies, an agency can help with that, too.
How Can Recruiting and Hiring Software Help?
The right software can help any company with its hiring. An effective solution allows an organization to focus more on its core business and less on recruiting. A high-quality applicant tracking system like ApplicantStack makes it easy to post on major job boards, create questionnaires, score candidates and even recruit via social media platforms.
Learn How ApplicantStack Can Make Recruiting More Efficient
ApplicantStack is a hiring and recruiting solution that has all the features mentioned in this article. It makes it easy to hire and onboard staff with a centralized New Hire Portal, time-saving templates and automatic task-completion reminders.
Start your free trial today and discover how ApplicantStack can help you improve your hiring process.
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