Both internal and external recruiting costs should be budgeted and planned for just like any other cost or expense in your business. Internal recruiting costs refer to your organisational costs and internal expenses, such as your HR and recruitment team’s salaries, any money spent on referral schemes and the salaries for the positions you recruit. External costs are every other expense you pay outside of your company in relation to recruitment, such as fees to the recruitment agents or job boards and any costs associated with external checks against financial and background records of your candidates.
Estimating and budgeting your company’s expected recruitment costs is vital to achieving effective and efficient recruitment. It will reduce the risks of you experiencing unexpected and potentially damaging costs.
Follow these 6 steps to effectively estimate your recruitment costs, so you don’t get any unexpected and costly surprises:
1. Estimate your total number of hires
If you’re predicting year on year growth for your business, the demand on your staff and company infrastructure will increase. Based on your predicted and estimated turnover, you should be able to calculate the total number of new hires you require based on increased workload and any pending internal promotions. The size and structure of your organization will also determine how many new hires you will need in each department and you should also consider the possibility of promoting or relocating employees, as these will also need to be replaced.
2. Don’t forget to consider any departures
You may have estimated that you need 10 new hires every year due to predicted growth and expansion, but you cannot predict how many of your employees will depart, if unplanned. If your staff are happy with their progression, rewards and treatment they are more likely to stay; however, with the exception of external factors that cannot be prevented, you cannot always prevent staff from moving on. Keep a record of your staff retainment and departure rates and if you are finding that you are hiring to replace more departed employees, as opposed to filling new positions, you should review your staffing and methods.
3. Estimate the basic recruitment costs
The basic costs of recruitment can be simple to calculate, such as the cost for posting an advertisement on a job board, the salaries you pay to your internal recruitment team, money spent on referral schemes and any costs associated with your internal branding and advertising; such as company videos, social media posts, listing vacancies on your website, hosting a recruiting event or attending job fairs. With some research and shopping around, you should have a good idea of your company’s basic recruitment costs and where to get the best value for your money.
4. Estimate your external agency costs
Money you spend on external recruiters, agencies or staffing firms can vary from role to role. External recruitment fees can vary based on the position, but typically there are different fees for temporary workers, temp-to-perm fees and permanent placement fees. For permanent placements, these can fall into two categories: contingency recruitment or retained recruitment. The cost of an external recruitment agency or individual will depend on the role being filled, but typically recruitment costs tend to range anywhere between 15% - 20% of a candidate’s initial annual salary and can reach up to 30% for hard to fill positions. If you’re intending to use an external recruiter, having a good knowledge of how these fees work will help you to choose the right service and prevent you from expensive recruitment, especially if you are left with a bad hire.
5. Budget for any miscellaneous hiring costs
Other recruiting costs that fall into the miscellaneous mix, are travel and hospitality expenses for the candidate, software fees for recruiting tools, such as for video interviews, background check services, applicant tracking systems, like Workable etc. Software can be budgeted for on a monthly or annual basis, particularly if they are set-up on a subscription. Travel and hospitality should be arranged in advance by the employer, as opposed to the candidate, to help keep costs to a minimum.
6. Calculate your cost-per-hire
Your average cost-per-hire is calculated by adding the total sum of your recruiting expenses from the last year and dividing this by the number of hires you made that year. You can then predict your recruitment costs for the next year by multiplying your average cost-per-hire by the number of new hires you intend to make.
CPH = Total recruitment spend Total number of hires
The more people you hire, the lower your cost-per-hire will be, as the money spent on recruitment tools and fixed costs will be spread out over more candidates. However, it is important to consider that the cost for each hire will vary depending on the industry you are in and the role you look to fill. For example, harder to fill roles that require a certain level of qualification and expertise, tend to be more expensive, as these often require specialist recruiters or headhunters and several interviewing stages. When calculating your cost-per-hire, use this calculation as a general guideline, as opposed to each individual hire’s cost.
Start saving on your recruitment costs
Recruitment costs should be planned and budgeted for just like any other company expense. This typically falls under the responsibility of a dedicated HR team, but sometimes Finance, Accounting or even a Managing Director for small to medium-sized businesses. Investing time into calculating your recruitment costs will help drive an effective recruiting process and lead you to become more efficient and productive with your recruitment methods. You will also be able to identify any areas for cost saving opportunities, where alternative methods of recruitment could be used, if you’re looking to reduce your budget.