Cost per hire: the simple way to calculate it, and what Indian SMBs usually find

The formula

Pick a period, usually a quarter. Then:

Cost per hire = (external + internal) ÷ hires.

Two honest simplifications for a small company. First, skip internal time in round one: it is real, but it is roughly the same for every channel, and leaving it out lets you start today with numbers from your accounts. Second, do not try to be precise about small shared costs; a figure that is 90% right this week beats a perfect one that never gets calculated.

A worked example: 40-person company, one quarter

A distribution company with 40 staff hires six people in a quarter: two through a consultancy, one from a job board, two referrals, one from its own careers page. The money side:

Average cost per hire: ₹78,000 ÷ 6 = ₹13,000. That number looks respectable and tells you almost nothing. Split it by channel:

Now the number changes decisions. A referral hire costs a tenth of an agency hire. If next quarter's plan is five hires, every one you move from the consultancy column to the referral or careers-page column keeps roughly ₹30,000 in the company. That usually funds the referral bonus increase and the careers page several times over.

The number that keeps cheap channels honest

Cost per hire has a known failure mode: it rewards channels that produce hires who do not stay. A walk-in hire at ₹0 who quits in three weeks costs you the vacancy twice, the training once, and the customers who met an empty counter. So track one more number per channel: how many of its hires are still with you after 90 days.

Divide channel cost by staying hires and the picture sometimes flips: referrals usually look even better, because people rarely drag a friend into a job they would quit, while the cheapest mass channels sometimes turn out expensive. If early quitting is your real problem, the fixes are usually in the first month, not the sourcing; our onboarding checklist covers that side.

Five ways SMBs actually lower cost per hire

• Pay referrers properly. If an agency hire costs ₹30,000, a ₹5,000 referral bonus paid promptly, half at joining and half at 90 days, is not generosity. It is a 6x saving with a built-in quality check.
• Give every channel one landing place. A careers page that every post, forward and QR code points at turns scattered CVs into tagged applications, which is what makes this whole calculation possible.
• Reserve agencies for roles that earn the fee. Specialist and senior roles, where a bad hire costs far more than the fee. Moving routine roles off agencies is usually the single biggest line-item saving.
• Respond faster. Offer-stage dropouts are pure waste: you paid the full channel cost and got no hire. For frontline roles the first employer to call usually wins, so screening the day the application arrives is a cost measure, not a courtesy.
• Close the loop politely. Candidates you rejected well come back for the next role at zero acquisition cost, and they tell others. Our rejection templates make that a two-minute job.

Making the tracking automatic

None of this requires software, and all of it is easier with it. The manual version: one spreadsheet, one row per application, with a Source column filled on day one, and a monthly totting-up against the accounts. It works, with discipline, and our Excel-versus-ATS guide shows the columns.

The automatic version: an applicant pipeline where sources are set up once, every application carries one, and the hiring screens show applications, hires and cost by channel without anyone maintaining a sheet. In HR-VEND that comes with the careers page in the Starter plan at ₹49 per employee per month, so the measurement arrives with the channel it is measuring.

Frequently asked questions

Figures in the worked example are illustrative, not benchmarks. Agency fees, board prices and bonuses vary by city and role; use your own accounts for the real calculation.