Employees are one of the most important investments any business can make. That said, recruiting new hires can come at a hefty cost. It’s important to take note that recruitment isn’t just a one-step process. It takes time and effort to hire someone. As a result, investments have to be made for the whole process to be successful.
According to the Society of Human Resource Management, a single hire can cost an average of $4,425. Upon looking at the average cost per hire, it’s important to look into your company’s recruitment costs before seeking help from recruitment agencies in the UK and US.
How can you avoid costly mistakes? How can you make your recruitment budget work for you? To help you out, here’s a quick guide on how to calculate and budget your recruitment costs.
Step 1: Prepare an annual recruitment plan
When it comes to running a business, having a game plan is always important. Spend time thinking about your recruitment agenda for the year. To figure things out systematically and efficiently, answer the following questions:
- How many recruits does your company need?
- How much will you offer junior and senior roles?
- Do you need full-time or part-time employees?
- What’s your employee turnover rate?
By answering the questions above, you’ll be able to form a cohesive recruitment plan ahead of time. Most importantly, planning will give you a good estimate of how many new hires you’ll need in your company.
You can sit down with your team and discuss the types of talents needed for each team. Figure out what objectives need to be met in the upcoming year and if there are any skills gaps in their team that need to be filled. If so, work out the type of new hires you need to fill the gap.
By pinpointing the type of new hire your team needs will help save you from hiring the wrong talent. As a result, you’ll be able to create a clear job description based on your team’s needs.
Step 2: Do a budget break down
After coming up with a recruitment plan for the year, the next step is to have a budget breakdown. Calculate how much of your money goes into recruitment per category. As mentioned earlier, recruitment is a whole process. There are several different stages an employer takes to find and hire a candidate.
Work out the budget for the following :
- Cost per hire
- Job advertisement rates (Indeed)
- Subscription to social networking sites (LinkedIn)
- Recruitment software fees
- Background check services
- External recruitment services
- Salaries for the internal recruitment team
- Recruitment event fees
- Training costs
By looking at your recruitment expenses one-by-one you’ll have a better idea of where your money goes. You’ll be able to estimate how to budget monthly costs by looking at fixed and recurring fees. Additionally, once you break down your expenses it’s easier to see if there are certain services you no longer need or cut back on.
Step 3: Keep track of past recruitment expenses
Looking back on your past recruitment expenses can help you plan for the upcoming year’s budget. The budget breakdown you created in the second step can even be broken down further by looking at your expense history.
Keeping track of past expenses gives you a more detailed account of where your money went. What certain events or services cost more and which expenses weren’t worth making. They will help you understand which recruitment tools, job events, or HR software your company needs to invest in.
For example, if you plan on hiring about 100 new hires this upcoming year with a cost per hire of $4000, the estimated total for recruitment will be $400,000. You can look at the number of new hires you made in the past and compare costs. Think of it as a thorough analysis of your recruitment expenses in the few years. Learning from your past will help you make smarter and cost-efficient decisions today.
To calculate your cost per hire, use the formula below.
The Society of Human Resource Management (SHRM) and the American National Standards Institute (ANSI) created a formula to calculate cost per hire (CPH).
CPH= (Internal Recruiting Costs + External Recruiting Costs)/ Total Number of Hires
Step 4: Monitor your time-to-hire
Time is money in the world of business. Knowing how long it takes for your team to hire someone will help you calculate your recruitment costs. According to research, SMEs take longer to hire a candidate compared to companies with over 5000 employees. It takes smaller companies an average of 41 days to hire a candidate. Bigger companies on the other hand, only take 25 days.
To calculate your average time-to-hire, use this formula:
Time-to-hire= Day candidate accepted the offer — Day candidate entered the pipeline
Step 5: Offer recruitment incentives
Top talents know top talents. One of the best ways to find the right talents is to have your employees reach out to their networks. To further help entice your staff to get on board in your search for the best candidates, include enticing incentives. For every successful hire, they could be rewarded with cash, extra vacation leaves, or a gift card.
Having a referral bonus scheme can shorten your recruitment search and increase your chances of finding the best of the best.
When it comes to budgeting your recruitment costs, it’s always important to remember that who you hire makes a difference. How your team performs is how your business will perform. Therefore, if you want high-performing business operations you need to find top talents. To attract the right talents, you need to value them.