What’s the Average Cost of Recruitment Anyway?

Ask any HR director or business owner and they’ll say the same – the average cost of recruitment is not for the faint of heart! While the cost to advertise and engage recruiters can prove to be an expensive endeavour, the knock on impact of lost productivity and the resource cost to interview and hire a new employee can be eyewatering – according to SHRM, for an executive-level employee this could be as much as £170,000.

So how much does recruitment actually cost? We’ve outlined a few of the considerations below.

Average Cost of Recruitment or Cost per Hire?

If you want to measure the average cost of recruitment, you need to start with cost per hire – the actual cost that a company spends on each employee it employs. For HR directors tracking their recruiting budget, it’s a critical metric that allows you to budget for future business and headcount growth and by comparing year-on-year, can help you determine if there are any significant changes that may indicate a change in the supply of labour or the effectiveness of your recruiting program.

How do you Calculate Cost per Hire?

The cost per hire formula is simple. Add together the external and internal costs involved in your overall recruitment efforts then divide it by the total number of hires in a given period. For example, if you spent £40,000 on external costs and another £10,000 on internal costs and you hired 10 people, your cost per hire equals £5,000.

What Should You be Spending on Your Recruiting Costs?

There are a number of factors that can impact your recruiting costs, most notably the demand for certain occupations versus the supply of talent available. For certain jobs that are experiencing extreme skills shortages – like IT developers – your cost per hire could increase dramatically. It also increases based on the seniority of talent, industry and potential geographies (among other considerations), but the cost generally is averaged out across the entire organisation, from entry-level to senior executive.

According to a survey by Oxford Economics and Unum, the logistical cost to replace a staff member across industry and seniority is on average, £5,433. For professional occupations and in talent-short industries, this figure can be much higher.

How Do I Calculate my Average Cost of Recruitment?

External recruiting costs:

• Recruitment technology: Artificial intelligence, automation, candidate assessments, applicant tracking systems, video interviewing and human capital management software, there is no shortage of recruitment technology to help facilitate the hiring process – but come at a price. Here are some of the best ones to consider.
• Recruitment process outsourcing / recruiters: Whether the hiring process is fully outsourced or recruiters are engaged on a contingency or retained-basis, the cost of engaging a recruitment service can, on average, range between 15-25% of the employee base salary. While many specialist recruiters have deep networks and knowledge of their sector – and therefore access to a passive candidate pool – for many start-ups and SMEs, this additional expense can prove prohibitive, especially for companies experiencing high growth and headcount expansion.
• Job boards: Advertisements on job boards can prove expensive, especially when spread across a number of platforms, so it is essential for businesses to measure which channel delivers the highest quantity and quality of candidates. With job aggregators like Indeed and Google for Jobs disrupting the industry, this is one tactic that will likely be in decline in the coming years.
• Background checks: Whether a criminal or credit check, the cost of ensuring candidates have a clean record should be included in your overall recruitment costs.
• Pre-hire assessments / psychometric testing: Companies are realising that the cost of a bad hire can be detrimental in both the visual monetary costs as well as lost productivity in the role, team and line manager. As such, companies are relying more on psychometric testing to see if candidates are a good hire for the specific role or culture of the business.
• Recruitment marketing: What was once classified advertising has evolved into a multi-channel candidate acquisition strategy to involve social media, SEO, PPC, display advertising, marketing automation and candidate nurturing, not dissimilar to how companies approach digital marketing strategies for customer acquisition. More companies are diverting money they previously spent on traditional recruiting channels to digital recruitment marketing. Additional programmes including employer branding initiatives and candidate nurture (database) marketing programmes are becoming increasingly popular as companies look to enhance the candidate experience.

Internal recruiting costs:

• In-house recruiters:  A rising trend in the industry is to bring experienced (often agency) recruiters in-house to manage a company’s recruitment needs. Additional costs for the recruiter remuneration requirements need to be accounted for as part of your recruitment costs.
• Systems (CRM): Like a customer CRM, companies are investing in candidate tracking systems and candidate relationship management software to retain the candidate records. Where companies fall short, however, is in reengaging these existing candidates when an opportunity comes available as they tend to look for ‘new’ candidates via recruiting channels.
• Referral rewards: Employee referrals continue to be a popular and effective way to attract candidates whose affiliation to the existing employee often results in a good match. Referral rewards can range from £500 to £3,000+ depending on the role, company and/or industry.

How Much Does Employee Turnover Really Cost?

The real cost of losing a valued employee far extends beyond the external and internal recruitment costs themselves. In addition to the above, these may include:

• The cost of onboarding (training, managing, etc.) a new person
• The lost productivity and institutional knowledge of the departing employee
• The lost engagement and morale of existing employees
• The potential impact on clients and customer service (with potential commercial impact)
• The lost financial investment of training and development that went into the departing employee; and,
• The cultural impact on the business and potential knock-on effect with other employees (especially if a manager leaves)

The same Oxford Economics study found that losing an employee earning £25,00 a year or more is £30,614. This rises to £39,887 and £39,230, respectively in the legal and accountancy sectors; the cost of losing an employee in the IT sector is £31,808. As the tech industry continues to be the driver of UK economic growth – which according to the TechNation report is growing at 2.6 times the rate of the rest of the economy – this is a worrying figure and can have a detrimental impact.

Overall, staff turnover reportedly costs British businesses at least £4.13bn every year. While business have been addressing and investing in their employee engagement and retention programs, employee attrition will continue be one of the costs of doing business. How companies manage their recruitment costs in a digital age will therefore be critical and investing some of the traditional recruitment costs into digital candidate acquisition channels will be a strategy that leading businesses will adopt to win the war for talent.

Thrive Marketing Communications helps businesses thrive and reach their potential with strategic recruitment marketing. Learn more about our recruitment marketing consultancy services.