Measure it by source before you change anything
A single blended figure tells you nothing actionable. The same team can run at a few hundred pounds per hire through referrals and direct applications, and ten times that through agencies, and the average hides both.
Split total recruiting spend into external and internal costs, then attribute each hire to the channel that produced it. The moment you can see cost per hire by source, the conversation changes from 'recruitment is expensive' to 'this channel is expensive and here is what it covers'.
- External: agency fees, job adverts, board subscriptions, assessments, background checks
- Internal: recruiter salary and on-costs, interviewer time, referral rewards, ATS licences
- Denominator: people who actually started in the period, not offers made
- Segment by seniority as well as source, because senior roles distort the blend
Attack the agency share first
For most teams that use contingency recruitment, agency fees are the single largest line and the only one that scales with salary. At 20 per cent, four hires at £60,000 is £48,000 — more than most in-house recruiting functions cost to run for a year.
You will not remove agencies entirely, and you should not try. The goal is to reduce how many roles reach an agency at full percentage, and to improve the terms on the ones that do.
- Apply the fee to basic salary only, excluding bonus, allowances and sign-on payments
- Cap the fee in pounds as well as per cent so senior hires do not scale without limit
- Extend the rebate period and make it a sliding refund, not a replacement-only credit
- Send roles to an agency on a deadline, not by default at kick-off
Fix the funnel leaks that inflate the numerator
Cost per hire counts everything you spent on candidates who did not join. A slow process, a poor offer-accept rate or a role reopened after a three-month leaver all push the figure up without any invoice changing.
Time to hire and cost per hire move together. Every extra week of live process is more interviewer hours, more advertising, and a higher chance the candidate you wanted accepts elsewhere.
- Track offer-accept rate; every declined offer is a hire's worth of cost with no hire
- Cut interview stages that no decision depends on
- Measure early attrition, since a hire lost in month three doubles the cost of that seat
- Reuse silver-medallist candidates instead of re-advertising the same role
Build a channel with a fixed cost per hire
The structural fix is a channel whose cost does not rise with salary. Employee referrals do that, which is why they consistently produce the lowest cost per hire and the best retention of any source — until internal networks run out of relevant people.
A referral network extends the same economics beyond your own employees. On Linillo you pay a subscription, a fixed fee for each referral you receive, and a recommended reward of around three per cent of first-year salary when someone is hired. The cost per hire stays broadly flat as salaries rise, which is the opposite of a percentage fee.
- Fixed per-referral fees make spend predictable before anyone is hired
- Rewards are paid on outcomes, so unfilled roles cost you nothing in rewards
- Referred candidates arrive with a named introducer and a working relationship behind them
- You own the candidate relationship from the first introduction
Frequently asked questions
- What is the fastest way to reduce cost per hire?
- Reduce the proportion of roles filled through contingency agencies. It is the largest line for most teams and the only one that scales with salary, so shifting even a quarter of hires to referrals or direct applications moves the blended figure immediately.
- Does reducing cost per hire hurt quality of hire?
- Not if you change channel rather than cut corners. Referrals typically produce stronger retention than job board applications, so cost falls and quality holds. Cutting interview rigour or advertising reach without a replacement channel is what damages quality.
- Should internal recruiter salaries count in cost per hire?
- Yes. The standard definition includes internal costs such as recruiting team salary and on-costs alongside external spend. Leaving them out makes in-house channels look free and flatters the comparison against agencies.
- How often should cost per hire be reviewed?
- Quarterly for the trend, annually for the full picture. Monthly figures swing too much on small hire volumes to be useful for decisions.