What does an IT-Tech recruitment actually cost?
The price varies depending on a multitude of factors, but generally the choice of recruitment process plays a crucial role in what you pay in the long run.
To recruit as cost-effectively as possible, it's therefore important to find an approach that suits your company specifically. Here, you can read more about how different processes and factors affect the cost of hiring personnel within the IT-Tech sector.
What you actually pay for the entire recruitment depends on various factors. Industry, recruitment process, skill requirements, salary levels, and advertising costs, risk of wrong hiring are some examples of things you need to consider when calculating the cost of recruiting new personnel.
The recruitment process often significantly influences the cost of recruitment.
The structure of the recruitment process often has the most significant impact on the cost of recruitment. There are different types of recruitment processes that come with different costs, risks, and advantages.
In the past, it has been common for companies to either hire a traditional recruitment agency or handle the process in-house. More recently, new models have emerged on the market, such as TaaS (Talent as a Service). The best approach for your company depends mainly on budget, resources, network, and how quickly you need to hire.
Traditional recruitment agency—pay the entire recruitment cost upfront
Companies that hire a traditional recruitment agency usually seek help with the entire process, from needs analysis to contract signing.
Typically, a company wishing to hire a traditional recruitment agency receives a fixed price that they pay at the beginning of the process. The price is often based on a certain percentage (typically 18-24%) of the annual salary for the position to be filled. For example, a Senior Backend Developer in the UK will according to Glassdoor cost you in 2023 a monthly base salary of about €7,500, you will pay the recruitment agency between €16,200-21,600 upfront.
You rarely get the money back in case of a potential mishire or poor recruitment; instead, you need to pay the full amount again if you want a replacement.
Advantages
Disadvantages
In-house—ongoing internal costs
Many companies choose to handle their recruitment in-house. This means that the company manages the entire process without involving an external party.
The costs of hiring personnel in-house are not always as concrete, as they are being absorbed internally in the process. Some companies set a clear timeframe for how much time they will spend on each candidate and steps in the process. This way, they can estimate the total cost by calculating resource needs and salary costs for those involved in the process.
To calculate the cost, you might multiply your hourly wage by the total number of hours you spend on all steps in the hiring process. The same applies to other involved colleagues, hiring managers and HR. Also, consider including the costs of any tools you use, tests/test evaluation, and travel.
Advantages
Disadvantages
TaaS - Split the recruitment cost through a subscription model
TaaS or Talent as a Service is a relatively new concept, in the UK and the Nordics. Different TaaS models can differ to some extent, but overall, it involves a company hiring recruitment tech-savyy experts to assist with Talent Acquisition during a specified subscription period.
The main difference between the TaaS model and a more traditional recruitment model is that the recruitment cost is split during the subscription period, rather than paying the entire sum upfront. Let's say the subscription runs for 3 years, and you pay a fixed amount at various intervals. For example you pay € 1,000 to start of the collaboration with the agent, €1,000 upon a candidate is signing a contract with you, €1,000 when the candidate has resigned his/her current job and starts to work, and then €1,000 every quarter until the subscription expires. In that case, you will have paid €15,000 over the course of 3 years.
If you choose to end the candidate's employment or if they leave voluntarily, recruitment experts will usually help you find an equivalent candidate while the subscription is active. This means that the costs associated with an incorrect recruitment can decrease, as you avoid paying the entire recruitment cost again.
Advantages
Disadvantages
Shared recruitment process—costs divided externally and internally
Some companies hire a recruitment agency to assist and handle parts of the hiring process and then handle the rest in-house. For example, a company might let an external party find and make an initial selection of candidates that match the job profile, then allocate internal resources to take over after the initial selection is made.
This way, costs are split externally and internally, which can be a cost-effective way for companies to get help with individual parts of the process.
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Advantages
Disadvantages
What contributes to the cost of hiring new personnel?
We've already touched upon the fact that recruitment costs depend on various aspects. So, beyond the recruitment process, what affects the final cost? Here are some aspects that can influence the cost of recruitment.
Your industry can impact the cost of recruitment
The industry can play a significant role in the total cost. Within IT-Tech, the competition and the shortage of candidates are considerable. This means that recruitment is often time-consuming, challenging, too comprimising and comparatively expensive.
The company's skill requirements can determine how smooth the process is
It has been reported for a while that finding candidates with the right skills in IT-tech is difficult. Many companies today find themselves in a situation where their digital development is rapid and ever-changing, demanding that they find candidates with the right skills and qualities.
In a survey conducted in 2022, recruiters and HR specialists worldwide stated that the most challenging role to recruit for in 2023 will likely be full-stack, followed by back-end and DevOps. Therefore, companies planning to recruit for these roles might experience a more complex and drawn-out process, given the high global competition. This, in turn, can affect the costs of finding and attracting talents that match the job profile.
Salary level
The salary level for the role you're recruiting for obviously plays a significant role. This is especially true if you hire a traditional recruitment agency, as they often base their fee on the salary you offer the candidate.
You also need to offer a competitive salary to attract and retain top talents. Salary levels the IT industry are relatively high compared to other industries, which means you have to compete with other companies to onboard the best candidates.
Additional costs—foreseen and unforeseen
It's important to consider that there might always be additional costs, both foreseen and unforeseen. Foreseen costs could be, for example, a recruitment tool that facilitates the process, as well as marketing and advertising costs. Unforeseen costs could include costs resulting from challenges, mistakes, or incorrect recruitments, which might lead to extended processes in the quest for the right candidate.
Training and onboarding
It's crucial to establish a realistic and effective plan for training and onboarding. From finding the right talent to signing the employment contract, you need to allocate time, resources, and sometimes a budget to integrate the newly hired employee.
Reduced productivity for internal resources
Regardless of the approach, hiring a new employee always requires more or less time and attention from internal resources. Those involved in the process might need to prioritize certain daily tasks during the recruitment period.
While reduced productivity indirectly affects the overall cost, a lengthy and drawn-out hiring process can become a significant expense in the long run. This is especially true when key internal personnel need to allocate time to recruitment.
Calculating the recruitment cost
There's a way to calculate the cost of recruitment, using a metric called Cost-per-Hire, or CPH. To calculate the CPH, you add up all internal costs and external costs. Then, you divide the sum you get by the total number of hires you made during a given period.
Remember to include all costs, both indirect and direct. This way, you can determine the actual cost of hiring new personnel.
Incorrect recruitment - a costly affair
To calculate the overall cost of recruitment, you also need to consider costs that arise from challenges and mistakes, such as an incorrect recruitment.
An incorrect recruitment essentially means that the hired employee is not suitable for the position. This could be due to a mismatch in technical skills, work culture or company values. The consequences can include increased costs due to underperformance, escalated conflicts in the workplace, or high employee turnover.
What does an incorrect recruitment cost?
Depending on the recruitment process, the total cost could go up to half a million or more. This is because you often end up paying parts of or the entire recruitment cost multiple times.
However, there are ways to reduce the risk of paying dearly for an incorrect recruitment. A well-planned and executed recruitment process, for example, can lower the chance of hiring an unsuitable candidate.
INSCALE helps you recruit cost-effectively and with a unparalleled assurance
INSCALE has developed a TaaS model that allows you to hire new personnel efficiently and at low risk. We specialize in assisting Scale-ups and SMBs in finding IT-Tech talents that match both hardcore skills and personal qualities mathing your company DNA and culture.
Our subscription is based on a 3-year collaboration. If you or the candidate were to terminate the employment within this time, we ensure finding an equivalent candidate/replacement - without any extra cost. In essence, we make sure your IT talent needs are covered throughout the subscription period and you can keep your focus on software product development.