Recruitment Cost: Budget Insights and Cost per Hire

Exploring the Cost of Recruitment

Before even opening a vacancy and finding a suitable candidate for your project, it’s important to understand the cost of a new hire. Recruiting a new specialist stays far from covering their compensation only. Opening a new position involves a bunch of costs that influence the overall HR budgeting. To manage costs effectively and ensure the resources are allocated efficiently, you should calculate the cost per hire and estimate all the hiring process.?

It's a good practice to consider all factors which have a direct impact on the recruitment expenses, and well as indirect costs.

What Is a Recruitment Expense?

While launching a new hiring campaign, it’s critical to assess the recruitment cost, which will encompass all recruiting stages, from attracting candidates until onboarding a new hire. Differentiated as direct and indirect costs, they cover different types of expenses that influence the overall human resources budgeting.?

Direct expenses have an explicit relation to the recruitment process and include job posting costs, ads, fees for screening checks, especially if a company uses AI tools, or ATS (applicant tracking systems). Instead, indirect costs are less perceptible and are difficult to measure. They usually include time for the Talent Acquisition specialist to find a candidate and time for training and onboarding, which also influence the overall recruiting budget.

What Influences Recruiting Expenses?

Optimizing recruiting strategies is possible when you understand what key contributors add on to the recruiting costs. Here are some of the main generators of the cost of recruitment:

• Position type. Not only the type of specialist, but also the position in range, will influence the final cost. You may need more resources and time to find a senior professional than someone for an entry level position. Recruiting costs will always reflect this.
• Geography. Whether you’re looking for specialists in the same country or remotely from all over the world, you need to define a final workable pricing. Geographic location will influence salaries of new hires and efforts to find them in the predefined timelines.??
• Market competition. Your recruitment cost may skyrocket if the industry is specific and the demand for specialists is competitive. Other companies may offer more attractive packages and compensations to attract the best talents, so you’ll need to adjust as well.?
• Recruiting duration. A correctly built recruiting strategy is a must. If it doesn’t bring its fruits, the recruiting time prolongs, which directly influences your cost of recruitment.?
• Recruiting platforms. The platforms where you publish your vacancies, post ads, and use for finding suitable candidates contribute to one of the solid parts of your recruiting expenses.?
• Tech tools. The most popular tech strategies used today are ATS and AI usage in manual processes. Even if they save money and time in the long run, their implementation and maintenance may require your overall budget adjustments.?
• Internal/external recruitment. The cost of a new hire may differ significantly depending on whether you launch a new recruiting campaign internally or decide to delegate it to an outsourcing IT staffing company.?
• Training and onboarding. Thoroughly elaborated training materials and onboarding programs are key to success in the recruitment process. Requiring extra resources at the beginning, these components reduce the cost of recruitment and retention in the end.??

Now that we covered the hiring costs, see which role in all the process plays the cost per hire.?

How to Count the Cost per Hire?

Together with turnover rate, time to hire, and other parameters, cost per hire is one of the main HR metrics. It shows what the cost for hiring a new specialist is and indicates whether the recruiting process is effective. To calculate the cost, you’ll need to add all recruiting expenses mentioned above and divide them into a number of specialists you want to hire. Basically, your formula will look like this:

You cannot make an average without meticulously counting all direct and indirect costs. Even if you use an IT staffing service, and refer to an IT staffing company for help. Together with HR managers, we usually analyze the levels of programmers you want to hire, compare programmer salaries in the market, and count all the involved costs before giving the final quote.?

Why Knowing the Cost per Hire Is so Important?

When you clearly define the cost per hire, you’ll close a couple of open questions at the same time. Firstly, you’ll be able to distribute your company’s budgeting, especially that part that you devote to recruiting activities. Secondly, the overall cost will show you how efficient the team is when you plan to hire a new specialist. If the cost is too high, especially compared with competitors, it may show you some areas for potential improvement. Finally, comparing benchmarks with the overall tech industry, will help you analyze your recruiter costs in general and see how you stand out from others.

How to Measure the ROI of the Recruitment?

ROI, which is return on investment, is the financial metric, which shows the efficiency of investment. It is used in the recruiting area as well, and not only in the overall landscape of a company. It may be difficult to measure, since the new hired specialists don’t bring the value immediately, or may not be involved in the tasks that generate value. Nevertheless, we try to calculate ROI to see if the value we get from recruitment doesn’t overpass the overall recruiting costs.

To calculate ROI, use the following formula:

The final value allows you to smartly build your strategic planning and effectively allocate your resources.

What Strategies Help Reduce the Recruiting Costs?

If you use the HR metrics and can define your main recruiting costs, you will see the areas for improvement and savings. One of the most frequently asked questions among hiring managers is how to reduce recruiting costs without compromising the quality? Here are some of the ideas that can help:

• Create an internal talent pool. When you create an internal pool of candidates, this saves you time and money with every new recruitment campaign. Add there specialists who already passed the screening process or who showed an interest in working with your company.?
• Implement ATS. Both small and big companies already use the Applicant? Tracking System today. You set there the parameters for a specific position, and the tool chooses the candidates with the highest similarity in their CVs. The tool streamlines the recruiting process and saves you time, even though it requires your investment first.?
• Launch a referral program. Referral programs save costs on ads, job publication, and time of search, because they target already hired specialists. The practice shows that the referred candidates are more often hired, and have a higher rate of retention afterward.
• Reduce interview rounds. Even though the position may require specific competences, I stick to the view that the three rounds of the interview is the best option. Most tech companies follow the same logic, building the interview process in such a way that three rounds of the interview will assess candidate skills holistically.?
• Focus on retention. As soon as a specialist is satisfied, you save on costs for their replacement. That’s why it’s so important to focus and invest in retention, which consists of career development programs, employee engagement, and benefits.?

Does Hiring Remotely Influence the Recruiting Expenses?

Remote work is now a standard reality, especially in the tech industry. Even while some companies come back to the hybrid mode, remote roles are top-ranked.?

Remote hiring and remote specialists definitely save costs on physical premises and travel expenses. It has become easier to maneuver while hiring specialists from different geographic locations. It widens the talent pool and may decrease time on finding a suitable professional. Besides, you can potentially reduce salary costs, which depend on the cost of living in a specific country.?

However, even with remote, you may still have extra expenses on digital campaigns for brand awareness, ads, and legal compliance. In some cases, you will need to redistribute costs that are usually dedicated to job fairs and other recruiting events to online campaigns. At the same time, extra costs may appear to set up remote work, such as implementing remote technologies, VPN, control, and cybersecurity measures.

What Role Do Automation Tools Play in the Cost per Hire?

Not only do automation tools help with managing job postings, but they also save time on manual tasks, filtering applications. Their analytical features provide valuable insights on the hiring process. They are also effective in managing administrative tasks, helping to schedule interviews or sending mails. As a result, you speed up the recruiting process, improve the quality of chosen candidates, and reduce your overall cost per hire. At the same time, HR specialists can focus on more strategic tasks.?

Wrapping up

Organizing a smart recruitment process is one of the crucial steps in your hiring strategy. It will influence your overall recruitment expense and shape your cost per hire. It’s important to be on track with all your internal and external costs and know the formula to calculate the extension of your team. Likewise, it’s not enough to compare your situation with that in the industry and among your competitors, but it’s essential to count the value you’ll gain with every new specialist.?

The main goal is to find the balance between cost efficiency and the value your new professional will bring. Every recruitment strategy should go hand in hand with the business strategy of your company, positively contributing to your business’ objectives.?