Employees comprise a substantial part of any OpEx budget—between salaries, tax, benefits, etc, it all adds up! This of course is not a “cost”, instead, it is an exchange for the wonderful work our teams put in!
Considering this, it shouldn’t come as a surprise that recruitment would be a part of the employment cost and, if left unchecked, can really balloon.
With the number of platforms, technologies, and agencies out there, it’s really important to keep track of what’s worth the money and what isn’t.
Otherwise, you’ll end up as I did and come into a situation where half your yearly budget (£100,000) was spent hiring 6 people and you have another 40 to hire with the remaining! (For reference £100K to hire 6 people using only internal sources is A LOT).
Below, I outline a practical guide on how to start thinking about and creating a recruitment budget, with a small example of my own budget.
Note that this is not inclusive of human resources costs, which would be separate. Also, this is not the definitive way, and I always tweak it a bit to present to leadership or finance, but I’m presenting what I’ve found to be the best jumping off point.
- Where to start
- Components of a budget
- How to track
- How to evaluate
- Knowing where you measure up
- Making your case to senior leaders/finance
Where to start with your recruitment budget
The first step is to check and work with your finance department, and I cannot overstate the importance of your partnership with that team!
They may have a particular format they like to work with, they may already have some data or, even more importantly, a hard limit for you already.
While you’re working with them, here is a quick checklist of questions to answer to understand what your budget may look like.
- How many new hires do you have for the new year/half-year/quarter?
- When are these roles needed? (i.e. will you have many roles at the same time or spaced out?
- Are there any particularly tough roles—especially executive roles?
- Are there any seasonal/temp/contract hires?
- What about high-volume hires—operational, customer experience, or grads?
If you also have any historical data, it’s good to keep track of:
- What’s your staff turnover rate?
- What’s the average cost per hire for the previous year?
To help with all this, read my article on how to create a sustainable hiring plan.
Once you have this down, you can separate the budget into different components and we can start figuring out what your budget might look like.
Components of a budget
A lot of places might ask you to categorise by fixed or variable cost, and you are more than welcome to do that. I will give an indication of which are likely to be fixed and which are likely to be variable costs.
Personally, I use slightly different categorisations to make sure that I don’t miss anything that might build up recruitment costs
These are the fixed operational costs, most comprising the salaries of the recruitment team.
Depending on whether your recruitment team is permanent or contracting, you may need to factor in a “true cost of an employee”. This would include things like taxes, pensions, and benefits (holiday pay etc, bonuses) on top of the basic salary.
As a rough guide, in the UK it’s accepted that the cost is no less than 1.5X the base salary. Your exact multiplier may vary depending on jurisdiction, and this is why it’s important to work with your finance team (whoever handles payroll will have that data).
If you would like to go more in-depth, you can also estimate the amount of time a hiring manager/person in a hiring team may need to spend, and how much that would cost based on their salary and “true cost”.
This is especially important when in a very small company, as you may not have a dedicated recruitment team and your hiring managers may need to do a lot of the hiring themselves.
For example, if a hiring manager has 10 engineering roles to fill in 3 months, that is a lot of time they will need to dedicate to filling these roles, so half of their OPEX cost can be considered towards recruitment.
If enough of these add up, it may be time to consider whether it’s more cost-effective to hire an internal recruitment team.
In today’s world, this is likely going to be a really big chunk of your budget, and likely where a lot of recruitment cost creep can happen (alongside advertising), but they are essential to the recruitment process.
ATS—applicant tracking system
This is likely an annualised cost, although I know some applicant tracking systems give you the opportunity to pay monthly so you can vary the membership, even though it is likely to be more expensive.
Check with your finance team how they may want the annualised cost represented in the monthly running budget.
A common tool you may use if you have a recruitment team. Otherwise, you may try with a Recruiter Lite or a Premium and buy more Inmails, although this can pile up, so my recommendation is to have a separate area in your excel spreadsheet where you keep track of who has what kind of license.
For example, it happened once that someone who was no longer working at the company had purchased a LinkedIn Recruiter License separately and, when I entered the role and looked at my first budget, I realised that this person had already cost more than £6000 in a short time!
Other hiring platforms
There are many out there! Some focus on curating candidates (e.g. Cord, Talent.io, Haystack, Hired) and others focus on getting you more outreach (Amazing hiring, Seekout, etc.).
Each has its own structure and pricing, some have monthly flexibility and others have only annual. Go meet them all if you aren’t familiar with them and see what works best for you.
A quick note on platforms where you can also advertise—this is where advertising and the platform side of the budget may blur, but use your discretion. I usually put in advertising any “per job” advertising cost. For example, Remoteok allows me to browse candidates, but I usually post jobs too, so it goes towards my advertising budget.
Related read: 10 Best Recruiting Software
Just as with platforms, there are many places you can advertise your jobs, so keeping track of how many candidates each job board yields is important.
Applicant tracking system
Don’t forget, some of the applicant tracking systems have deals with certain boards and can give you free or discounted job postings.
If you’re shopping around for an ATS, this might be something to watch out for—do they have job boards in different locations that you can just easily post to through the ATS? Makes the tracking a lot easier as well.
Pro-tip. Even if the ATS doesn’t have the posting built-in, make sure you understand what is the best way for your ATS to track applicants from each board.
For example, Greenhouse can generate a link for a specific job board allowing you to track who’s coming from where making evaluation much easier.
I’m separating this from the rest because the pricing works a bit differently. Here you can have pre-paid advertising slots or “bidding” job slots.
If you have the latter, it’s incredibly important to keep track of spending because you may think “Ah £10 a day is not too bad”, but that is £300 per month and, if you have 10 roles, there goes a solid chunk of your budget.
Consider that your role may also need to compete with the big companies who can afford to spend £100 per role per day and it really puts things into perspective.
There are so many nowadays! Some are generalist (LinkedIn, Indeed, Otta, Totaljobs) and others have a niche—could be per industry, per job conditions like remote work, or specialised to an audience like SheCanCode.
It can be difficult to choose, but what I usually do is try to understand the roles I have and then see if that tells me the kind of split I need to look for.
For example, if I have a lot of tech roles, where would the techies be? If I have roles where I am open to remote workers, let’s go there! Design—I immediately go to Behance or Dribble. There are many options, which is why it’s so important to keep track as each post can be between $300—700 for 30 days and that can add up, especially if you are posting the same role in multiple places and you have a lot of roles.
The example I gave at the start of £100k being spent to barely hire 6 people (2 ended up from recommendations), was because of this “spraying and praying” attitude.
It may not be easy to put a monetary value to this because almost any activity you do online can be considered employer branding (e.g. a post on your own social media is free).
But, if you’re putting a concerted effort into employer branding, you may look into advertising yourself as an employer on platforms like Linkedin or Glassdoor without necessarily posting a job. That can be a separate line item for the cost.
Recruiting Events / Job fairs
Sponsoring or attending events can be a costly endeavour, so make sure you take a look at a few events that might be the most relevant to you in your area and meet the organisers to understand more.
They can be a great place to meet candidates and I’ve had a lot of success, but you have to think of your own circumstances. Do you have the time/resource necessary to go to an event that may not yield a single placement but could boost your visibility?
With the rise of the internal recruiter, there is this almost innate drive to “reduce agency usage to zero” as part of the KPI of the Talent Leader. I know, I’ve had that KPI myself.
However, there are times when an external partnership may be necessary. You may not have a dedicated recruitment team yet, you may be entering a market you don’t know, or your team may be at capacity.
To give you an example, even though I started in executive search back in the day, after moving in-house I ended up filling more of the mid-level roles as that is where the volume was.
That’s why, when the CEO comes up to me to ask me to open a role for a C-level person, I actually advocated getting an exec search company because they had the connections I once had.
Depending on your location, the average agency fee may be between 15-25% of the basic annual salary, but it’s a time trade-off. Don’t forget to factor in the value of your time, as you may end up spending much more than if you had just gotten an agency recruiter.
As always there is a “Misc” or “Other” category just to catch anything else that may be considered.
One thing is to factor in any referral bonus or incentive payments. If you have historical data on referrals then great, if not I like to be generous and factor in about 20% of the placements coming from referrals (and I push hard for referrals!).
Another is things like background check services—those can add up and, in some jurisdictions or with certain roles, referencing or background checks are mandatory.
How to track
Again, I would recommend you work with your finance team to check with them how they track all the other costs. For example, if an item has an annualised cost, would they like it in the month that it’s paid in, or is the cost divided by 12 and inputted across the year?
If no such team is available, I’m personally a fan of putting the item in the month that it’s paid in so I can keep track of the subscription renewal as well.
After that, to work out the actual total cost-per-hire, you take the full cost for the year of everything you’ve estimated you will spend and divide it by the hires.
- Cost per hire = all costs total/number of hires
Here is a screenshot of how I personally organise my budget (link to spreadsheet here):
How to evaluate
As always with numbers and data, the most important thing is what you do with them.
I like to split my monitoring and evaluation into three loose categories: priority one, priority two, and priority three.
This helps me understand how often to review and what kinds of metrics to set.
Priority one costs
These are things like advertising and platform usage. The reason why I think they’re priority one is because a) they can add up quickly and b) you can get a grasp of how much you’re getting out of each platform or job board pretty quickly. This means that it’s advisable for you to regularly check in on the performance of each.
For candidate platforms, I always check with my team what the candidate quality, quantity, and engagement are like (or I myself keep track of it), plus that way I also make sure that the team is using the platforms we’ve purchased.
For advertising, I make sure I check the conversion rates from each job board so it informs me of the potential quality of candidates.
For example, let’s say I’m using three job boards. One gives me lots of candidates but the conversion rate is not great, the second one has few candidates but we’ve hired half of them, and then a third one has few candidates and no hires. I know which one to axe immediately and then which one would be next.
Priority one is also agencies—they can be expensive and you want to make sure they’re doing what they need to do for the money you’re paying them, if I may be so blunt.
Priority two costs
These are things like employer branding and events. These may not happen super often, and you may need to do a few of them to get a feel for what works and what doesn’t. Therefore, it’s likely you’ll need to check in on them less often than the priority ones.
Things to watch out for from events are the number of hires and general engagement. If you attend an event where you don’t hire anyone, but you spoke to a lot of people, it’s still better than ones where no one came up to you.
Priority three costs
Are things that need to be monitored over a slightly longer run for you to understand if you’re really getting what you need out of the spend.
Here I usually categorise salaries for the recruitment team and ATS/HRS spending. You would not need to monitor the cost so frequently and, for the recruitment team specifically, this would not be the best way to review performance anyway—using metrics would be better.
How Do You Measure Up?
It’s notoriously difficult to say what the average cost-per-hire should be. Numbers online range from $3,000-8,000. I usually take around $6,000 to be the rough average, but it depends on so many factors.
When I first started working in-house, the talent acquisitions director I worked under told me “As long as we are cheaper than using an agency, we should be fine.”
While I think this kind of attitude reinforces some sort of adversarial relationship between the two, which I’m not a big fan of, I also understand the logic.
If you find yourself with a cost-per-hire getting closer to 20% of the base salary per position, you may need to re-think your strategy and reign in your spending.
Notice that I say “may”. It may be the case you have that budget and are OK with the spending because you spent a lot on employer branding, and this will likely yield results later and lower the average cost-per-hire in the long run.
The general rule is to always be thinking, “Is this the best use of this money?”
For example, if you’re spending 20% of the salary on job board advertising alone, and also spending loads of your time reviewing CVs, is it time to bring in an agency or re-think how many places we advertise?
Don’t forget that you may also be spending a lot now because you have multiple roles to fill and they’re urgent. That will be expensive, but, the more you hire, the lower the cost eventually will be.
It really depends on your hiring needs. Recruitment, like many other things, adheres to the Venn diagram of Cheaper-Quicker-Better (Good, Fast, Cheap: You Can Only Pick Two! - Pyragraph)
Making Your Case To Finance/Senior Management
This may be a tough discussion to have, but if you’re prepared with some estimates at least there’s a jumping-off point.
As with any negotiation, go in with everything you need—the “ideal” tooling and advertising budget—and be prepared to settle for “good” amount.
Also, arrange for any leftover budget to roll over into the next month. That way you build a cushion both for you and for the company.
You may hear the line “Come to us as and when you need things rather than plan a budget out”.
This gives me flashbacks.
If you get this, I recommend you ask why it’s not possible to budget at the moment and if it would be helpful to make a quarterly or a half-year budget.
Having this gives both the recruitment and senior management/finance teams a clear idea of the costs and efforts needed.
Otherwise, it’ll snowball if you have to “ask” for consent every single time you post a role and, eventually, the other side will ask for you to do it in bulk (or in other words, budget) and you’ve just wasted a lot of time in between.
If the budget you’re given is too low, and you feel like you won’t have enough to work with at all (I think a reasonable limit would be around $2000 per hire), then you have to start talking to people about priorities.
Either you will have to do a lot more things manually, and therefore slower, so you won’t be able to work on as many roles, or you won’t be able to advertise as many roles at once, which will also slow you down.
Let finance/senior management know about the likely outcomes and work together to figure out the impact on the business. Either you will realise that the things that were priority were actually not so urgent, or budget will be found from somewhere.
Budgeting is not easy, be it for home or work, but with a bit of forethought it can be made just a tad less difficult.
To use a metaphor, it’s like with streaming services. Everything today is streaming and it can be so convenient, but I subscribe to Disney, Netflix, Amazon Prime, WarhammerTV, HBOMax, and YouTube Premium…. you get the point. It can get out of hand!
You have a lot to keep an eye on, but budget is likely going to be one of your major constrictions unless you’ve been given a blank cheque (in which case please let me know which company does that!).
To help manage everything, set a cadence of how often you will review your priority ones, twos, and threes, and make it part of your routine. After which it will settle into a pattern and you should be good to go, building data as you go.
As always, best of luck!
Some further resources to help with your recruitment strategy:
- Employer Branding: Where To Start And How To Keep It Authentic
- Your Employer Value Proposition: An In-depth Dive
- The Key To Focused, Engaging Interviews (+ Template)
- Bias In Hiring: The Different Types And How To Tackle It
- Recruitment Marketing: What It Is And 10 Effective Tactics
- Best Cloud Recruitment Software for Hiring Teams
- Best Recruitment Software for Small Businesses
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