Determining the cost of recruitment ahead of time will help your hiring process become more efficient. If you take the time now to plan for the costs associated with hiring a new employee, you can save time and money in the long run.
How to determine costs:
Step 1. How many hires?
- Sit down with your hiring managers and assess the areas where you might need to hire for new roles, already need to fill vacancies, or expect turnover.
- Review previous recruitment budgets and compare your expected needs to the actual needs of that given year.
- How might upcoming company goals and objectives affect your hiring needs? What gaps does your organization have in skills and perspective that you should be hiring for?
- Create a table to track projected hires. Break down each department of your organization into its own category, then break them down again into fiscal quarters. Total the company-wide hires you need, as well as the total for each team.
- This table will be your reference as you move forward with your recruitment budget and hiring plans. Include any expected retirements/changeover as well as expanding teams.
- Determining the expected number of hires for the year should also include room for the unexpected. Looking at your turnover from the previous year, account for any unexpected departures in each department. You can set this number aside as a contingency number, but make sure to also include it in your big picture planning. If you don’t have turnover data for your own company, look at industry averages.
- Using turnover contingency numbers, along with expected hires and expansion, you can chart out your hiring needs and estimate the rate of expansion. For example, if 8% of your employees may leave, and your goal is to have a certain number of employees by the end of the year filling necessary positions, then you may need to hire more positions in certain departments than you originally estimated in order to reach that goal.
Step 2. Basic costs
When thinking of basic costs to include in your recruitment budget, these can include items like:
- Niche job boards
Posting your job ads on a niche, industry-specific job board is a great way to spend your recruitment budget. Placing jobs in this way targets the exact candidates you want to apply to and puts your jobs right in front of them. Decide which job boards you want to place your ads on, and which packages might work best for your needs. Estimate the costs based on past spending alongside your estimated potential hires. How much did you spend in past years, what would you like to spend this year, and what can you realistically afford? Be sure to keep a list of industry-specific job boards that you would like to post on in the future.
- Paying your recruiters
Don’t forget to include the salaries of your recruitment team and hiring managers in your list of basic costs! For this part of the budget, keep in mind that the ideal number of in-house recruiters will be one for every fifty hires you have planned. You may need to look externally for more difficult hires, but that could be more expensive. Plan for which roles you might need an external recruiter’s help. External recruiters usually charge a percentage of the salary of the position that is being hired.
If you don’t already have an established employer brand, make this a priority. Branding is an essential element of your recruitment efforts. Employer branding costs also include attending industry events that may not be recruitment-specific, along with marketing materials like promotional videos, social media posts, and updating your logo or company mission statement. Make note of the events where you or your team can connect with the most candidates and plan to attend those events again. Once you have an idea of what marketing and branding efforts might be needed to reach your hiring goals, you can include these costs in your recruitment budget.
Step 3. Fixed costs
Fixed costs in your recruitment budget may include:
Have you sourced candidates from career fairs, schools, universities, or institutional events in the past? Did you hire those candidates? If you have this information, use this to determine which events you will attend again and how much the cost of sending yourself or some team members will be.
- External recruitment
As mentioned above, some harder-to-fill positions may need external recruitment support. Executive positions may need a more proactive approach. If you decide to go this route, add the associated fees to your overall recruitment budget.
Ticket cost, accommodations, and associated event costs for any networking or recruitment events you plan on attending should also be included in your recruitment budget. Look at the events that have been successful in the past, and ones you may want to attend in the future. You may also be considering hosting your own recruitment events!
Step 4. Technology costs
Investing in technology to help with recruitment can help cut down on costs down the road and make your whole process more efficient. It’s best to think ahead about the technology that you want to use and what will help with your problem areas. These technology costs may be monthly, quarterly, or annual.
Consider including these in your budget:
- Video interviewing
Software like Zoom, Skype, or Google may be worth paying for a professional subscription if you’ll be using these services regularly.
- Skills assessment
For more technical roles, skills assessments can be a great way to assess a candidate’s fit for the job during the interview process. There are many tools that can be used to make skills assessments that are specific to the industry or job. For example, Codality and HackerRank are both coding assessment tools.
- Background checks
Consider using a background check service to save time on the administrative tasks associated with completing this step, if it is necessary to your field.
- Applicant Tracking System (ATS)
A reliable and efficient ATS will help to encourage interested candidates to apply, and help your team keep track of the hiring process.
Step 5. Review and estimate
Let your data help you improve your processes.
- What steps can you add to your recruitment and hiring process to cut down on the costs you listed in earlier steps?
What areas do you see the most or least return on investment? For example, if you decide to invest in skills assessment, consider whether you want to do this before or after interviewing candidates. The more candidates who are tested will mean more money spent on that tool but may save you money and time in other areas.
- Improve your employee referral program.
If you don’t already have one, make one! Consider increasing incentives and bonuses for employees who refer successful hires, or changing the incentives based on employee feedback. Keep track of how many candidates have been hired historically based on employee referrals so you can estimate what needs to be set aside in your budget. You’ll also need to include any costs associated with promoting the referral program itself.
Step 6. Miscellaneous costs
You always need to leave some room in your budget for the unexpected.
Some miscellaneous costs could include:
- Travel to events
- Careers page updates and redesign
- Covering travel or relocation costs for candidates
- New office supplies
- Access to learning materials or training programs for new hires
Step 7. Calculate
Using your freshly updated recruitment budget, you can now estimate the cost-per-hire. Cost-per-hire, or CPH, may fluctuate year to year but is a good number to have on hand when discussing upcoming recruitment plans. This number will consider all the expenses you listed out following the previous steps. Add up all your internal and external costs. Include the combined estimated salary amount of your expected new hires. Then divide that number by the number of total hires to get your CPH.
Now what do you do with your estimated recruitment costs?
Once you have calculated your estimated Cost-Per-Hire, put it into perspective. Your CPH will be larger or smaller depending on the company size and the number of hires needed. Bigger organizations can usually keep costs lower because they are able to put their recruitment budget to use on a larger scale, have more resources, and are hiring for more positions at any given time. For an average size company, however, cost-per-hire can be expected to be around $3k-$5k. See how your numbers add up. Remind your team that some roles may have a higher CPH if they are especially hard to source candidates for.
Keep track of your recruitment costs as you move forward with these new goals and insights. Adjust where you can and remember to be patient!