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Recruitment is a crucial business function requiring careful scrutiny. If left unchecked, recruitment costs can quickly spiral, so use this guide to keep on top of them and maximize your return on investment.

What Are Recruitment Costs?

Recruitment costs refer to all the expenses associated with the process of attracting, sourcing, interviewing, and hiring new employees. These costs can be direct or indirect and can vary widely depending on factors like the industry, the level of the position being filled, and the hiring strategies used.

When all costs are added up and divided by the number of hires, you have your average cost per hire. Of course, you can get more granular and calculate costs for a certain role or department.

What Factors Are Used To Calculate Recruitment Costs?

Calculating recruitment costs involves considering a variety of factors, each contributing to the total expenses associated with the hiring process. You can get a better grasp on which factors drive costs through a recruitment audit.

Here are the key factors used in calculating recruitment costs:

1. Advertising and job posting costs

  • Job boards and websites: Fees paid to post job openings on platforms like LinkedIn, Indeed, Glassdoor, etc.
  • Social media advertising: Costs of promoting job ads on platforms like Facebook, Twitter, and Instagram.
  • Print media: Expenses for advertising in newspapers, magazines, or other print publications.
  • Career page maintenance: Costs associated with maintaining and updating the company's career site.

2. Recruitment agency fees

  • Agency commissions: Typically a percentage of the new hire’s first-year salary if a recruitment agency is used.
  • Retained search fees: For executive search firms that charge upfront for finding senior-level positions.

However, by partnering with RPO companies, businesses may be able to significantly lower the cost of recruitment while maintaining high-quality hires.

3. Employee referral program costs

  • Referral bonuses: Payments or incentives given to current employees for successful candidate referrals (employee referral platforms can help track these).

4. In-house recruitment team costs

  • Salaries and benefits: Compensation for HR and recruitment staff involved in the hiring process.
  • Training and development: Costs of ongoing training and professional development for the recruitment team.
  • Operational expenses: Office space, utilities, and other overhead costs related to the recruitment department.

5. Interviewing and assessment costs

  • Travel and accommodation: Expenses for flying in candidates for interviews, including hotel stays, meals, and transportation.
  • Interviewing time: The cost of time spent by managers, HR, and team members conducting interviews (often calculated based on their hourly wage).
  • Assessment tools: Fees for any pre-employment tests, psychometric assessments, or skills tests administered to candidates.
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6. Technology and recruitment tools

  • Applicant tracking systems (ATS): Costs for recruiting software such as applicant tracking systems that help manage and streamline the recruitment process.
  • Resume databases: Fees for accessing online databases of candidate resumes.
  • Background check services: Costs associated with conducting background checks, credit checks, and drug testing.
  • IT infrastructure: Fees associated with building and maintaining a company careers page, including job posting software.

Psst. Many small businesses turn to free HR tools to keep recruitment expenses under control.

7. Career fairs and recruitment events

  • Event participation fees: Costs to secure a booth or presence at job fairs, university career days, and other recruitment events.
  • Marketing materials: Expenses for brochures, banners, and promotional items distributed at events.
  • Travel costs: Costs for recruiters to attend events, including transportation, lodging, and meals.

9. Miscellaneous costs

  • Legal fees: Expenses related to drafting employment contracts or other legal services.
  • Relocation expenses: Costs covered by the company to relocate new hires to the job location.
  • Exit costs: If replacing an employee, the cost of severance, benefits continuation, and other termination-related expenses.

10. Time and efficiency metrics

  • Time-to-Hire: The time taken to fill a position from the initial job posting to the hire date, often expressed as a cost in terms of lost productivity.
  • Cost-per-Hire: A specific metric that divides the total recruitment costs by the number of hires made, providing an average cost per new employee.

11. External economic factors

  • Market conditions: Economic conditions, labor market tightness, and industry-specific factors can affect recruitment costs.
  • Competition for talent: In high-demand industries, companies may need to spend more on recruitment efforts to attract top talent.

How To Calculate Your Recruitment Costs For Budget Planning

Here’s how to estimate your total recruitment costs when developing your recruitment budget.

1. Estimate your total number of hires

Start by determining how many positions you’ll need to fill across each department within a specific period (e.g., quarterly).

Hopefully, this will be agreed upon via a collaborative hiring planning exercise that also takes into account expected turnover.

2. Estimate your fixed costs

  • Internal recruitment team costs: Includes salaries, benefits, and other compensation paid to your HR and recruitment team over a set period. You can also go a layer deeper and estimate the cost of hiring managers and other team members’ time.
  • Operational overheads: Factor in the cost of office space, utilities, and supplies used by the recruitment team.

3. Variable recruitment costs

  • Advertising costs: Estimate the total amount you’ll spend on job postings, online ads, social media promotions, and any other marketing efforts. 
  • Agency fees: Estimate any fees you’ll pay to external recruitment agencies e.g. if you’re hiring difficult-to-fill roles, do you have any past data telling you how many were hired using recruiters?
  • Account for referral bonuses: Again using past data if you have it, estimate any rewards you’ll pay to employees for successful candidate referrals.
  • LinkedIn and other platforms: Costs for seats or subscriptions to LinkedIn recruiter and other hiring platforms.

4. Estimate recruitment tech costs

5. Calculate cost-per-hire

Total recruitment costs: Sum all the costs from the previous steps to get an estimate of your total recruitment expenses.

Cost-per-hire: Divide the total recruitment costs by the total number of hires.

Example calculation

  • Total number of hires: 20
  • Fixed costs: $80,000
  • Variable recruitment costs: $20,000
  • Recruiting technology costs: $10,000

Total recruitment costs:

10,000 + 80,000 + 5,000 = 95,00

Cost-per-hire:

95,000/20 = 4,750

In this instance, your cost-per-hire would be $4,750.

This method allows you to get a clear picture of how much it costs your organization to hire each new employee and can help you identify areas where you can reduce costs or improve efficiency e.g. is a certain jobs board costing a lot but not yielding candidates?

10 Best Practices To Reduce And Control Recruitment Costs

Of course we all want more for less, so how can you lower your recruitment costs while still improving other recruiting metrics such as quality of hire?

1. Effective planning

Hiring the right talent starts with careful planning, and the fact you’re reading this article is a great start!

A well-defined plan helps allocate resources effectively, minimizing unnecessary spending on recruitment and new hire onboarding, and leads to a better candidate experience. It also helps avoid mis-hiring and over-hiring.

Further, a well-executed hiring plan considers not only the recruitment of new employees but also their long-term success and retention within the organization (which can reduce the need to recruit in the first place).

For example, it helps define roles and responsibilities and opens up conversations about internal mobility and development.

2. Build a strong employer brand

Investing in your employer brand will help you attract candidates and reduce the need for expensive advertising, leading to a higher volume of quality applications.

At the core of your employer brand is your employer value proposition (EVP), or what you offer as an employer in exchange for someone’s labor.

A well-defined EVP will help you retain current employees and attract the right candidates for your roles.

3. Automate

While a lot of recruitment involves being creative and connecting with candidates on a personal level, there's a substantial amount of repetitive tasks and inefficiencies.

Recruitment automation automates many of these tasks to reduce admin and free up recruitment teams to focus on more important things such as speaking to candidates and further streamlining the recruitment process.

Strong contenders for automation include:

  • Posting job descriptions
  • Communication e.g. rejections, info, or reminders
  • Interview scheduling
  • Generating reports.

Read our round-up of the best automated recruiting software for systems that excel in this area.

4. Leverage existing employees

Existing employees are a great way to source candidates because they know your roles and organization.

If your employer brand and EVP are strong, then this shouldn’t be too difficult, but you can always add incentives and make it easy for people by keeping them updated on open roles with job descriptions to share.

You can also leverage current workers to participate in your recruitment marketing efforts and share stories and testimonials on your website and social media to showcase your company culture.

5. Implement good data hygiene

Lowering recruitment costs is all about monitoring your recruitment process and highlighting inefficiencies. For this you need good quality data that represents reality. 

The best way to do this is to follow up regularly and check in with your team and the hiring managers to help them build the habit of entering and updating data.

For example, to make sure screening calls are entered into the system, set a KPI around them and check in regularly.

If you want to make sure that hiring managers enter their feedback, check in after every interview and read that it is good quality feedback.

6. Optimize job postings

Your going to want to get your job postings in front of as many potential candidates as possible. Developing a good recruiting SEO strategy will go a long way toward helping you make the most of each posting.

Also, writing clear, targeted job descriptions will help attract the most suitable candidates and reduce the volume of unqualified applications.

For guidance, check out Mariya Hristova’s excellent guide how to write a job description.

7. Training

Invest in training internal teams to improve their skills in areas such as sourcing, interviewing, and negotiation. This should hopefully pay dividends in the long run.

8. Hire internally

The talent you need might already be present in your organization, negating the need to go out into the wider market. 

One way to help meet talent needs internally is by implementing effective learning and development strategies and becoming a skills based organization

Instead of focusing on job titles and positions, the primary focus becomes the unique skills and abilities of your employees and how they can be developed and deployed most effectively to meet business needs.

9. Outsource

Recruitment process outsourcing can help lower costs by saving time and resources related to candidate sourcing and normally recruiters will also help with the interview process too, helping both parties determine if it’s a good match.

Options here include a professional recruitment service, professional employer organization or an employer of record.

10. Leverage free/low cost tools

Using free or low-cost tools can significantly reduce recruitment expenses without sacrificing efficiency. For example, reduce your overall expenses with a no-cost payroll solution that helps streamline payroll alongside recruitment efforts.

By leveraging online platforms and software with no or low fees, companies can cut down on recruitment agency fees, marketing costs, and administrative tasks, making it easier to manage recruitment on a tight budget.

Recruitment Cost FAQs

Finn Bartram

Finn is an editor at People Managing People. He's passionate about growing organizations where people are empowered to continuously improve and genuinely enjoy coming to work. If not at his desk, you can find him playing sports or enjoying the great outdoors.