How much does your recruitment cost?

April 13, 2021

Some companies have a crude idea of the cost of their recruitment, many don’t have a clue. Most recruiters know what they spend on external recruitment partners or direct advertising,  but that’s not the full story.

The truth is this: most companies underestimate their recruitment costs by over 90%. So, how do you calculate your recruitment cost, what do the figures tell you, and most importantly, how can you reduce them?

Direct costs - the easy part 

This is the money that actually leaves your company’s bank account, and is thus easiest to calculate. In fact, many companies know very clearly what their direct recruitment costs are.

These direct costs include fees for external recruitment agencies or advertising partners, social media or job platform subscriptions and fees, possible employer branding activities and the salary costs of your in-house recruitment team. Even without accurate data, these costs are quite easily determined!

In the IT industry, external headhunting partners usually take around 17-25 % of salary, or between 12 000 - 20 000 € per recruitment. Advertising costs are usually ~ 1000 € per job opening, but can be significantly more if advertising partners are used.

Do you have continuous subscriptions to job platforms, deals with student organizations or other recruiting communities or an ATS to manage your recruitment flows? Add all of these costs up. This is the first part of your recruitment cost function.

In-direct costs?

The second part of the function is more difficult to calculate - and thus often neglected. Ask: how much time do our employees spend on recruiting, and what is the value of this time. Companies usually have a hunch of how long filling a single role takes, but do not take it into account as a cost.

For a quick guestimate, estimate this:

  • How many hours does your recruiter spend on a single role (role description, posting, advertising, screening, interviewing, etc.)?
  • How many hours do hiring managers spend on the same role (role specification, interviewing, decision making, contract negotiation, etc.)? 
  • Who else is involved and how many hours do they spend (think marketing, team members, management, HR, finance, etc.)?
  • How many roles do you fill per year?

Take into account that different roles may require radically different approaches and time spent. As a crude estimation, filling one tech role takes around 50 - 150 hours of work from an experienced tech recruiter. For a recruiting rookie the amount can easily be doubled.

Cost of an unfilled role?

To make the estimate more accurate - and complicated - you will also want to include the cost of having an unfilled role in your team. Do you know how long it takes your company to hire people?

Usually this figure is around 10 - 16 weeks (from job opening to accepted offer) or 14 - 20 weeks to the new hire actually starting in their new position. During these weeks, the need and work tasks are either not completed or are completed by the hiring manager, an overworked team member or, perhaps, a costly freelancer. The longer the hiring time, the higher the cost.

For a super-crude estimation, this is the calculation to use:

  • Consulting agencies: how much could have you billed on this person during these weeks - their salary and employer costs.
  • Tech product companies: company revenue / employee amount / days * Time to Fill
  • Costs can be doubled or tripled if the strain of excess work results in employees leaving your understaffed teams before new hires can be brought in.
  • Add onboarding costs and the time to full productivity (can take up to 6 to 12 months, depending on role), and the results will tell you how expensive it truly is to lose a competent employee.

Reducing the cost?

Not satisfied with the numbers you got? Looking for more robust cost-cutting solutions? Here are our best tips:

  1. Improve your internal recruitment capability to be able to do efficient tech recruiting yourself, and be less reliant on expensive, external recruitment partners - short-term consulting with a Toptier Talent Advisor can save you a big penny in the long run!
  2. Involve your tech teams in finding and contacting the best candidates: higher quality candidates typically have a smaller time to productivity and less of a risk of leaving your company within the first 6 or 12 months
  3. Plan your recruitment needs in advance and move from reactive to proactive recruiting - this can reduce your typical hiring time by 4-6 weeks
  4. Define your target candidate and build a candidate pool to lower your Time to Fill: a pre-filled candidate pipeline can reduce hiring times to 3-4 weeks!
  5. Strengthen your employer brand and marketing to better target your wanted candidates, increase candidate response and offer acceptance rates and lower your Time to Hire
  6. Focus on employee retention and engagement to lower your overall recruitment needs

Ready to start saving on your recruitment costs and begin investing in your future growth, instead? Give us a call today!

We build future-proof talent organizations by developing internal talent management competence.

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