Every member of staff in a small business has a big impact on the company’s success – much more so than they would in a large corporation. This is why it is vital to get the hiring of new talent right. And while most people accept that finding excellent staff will involve a certain level of time, resources and investment, long recruitment processes can soon eat up your capital.
In this article, we evaluate recruitment costs and how these can be minimised without sacrificing top-quality hires.
How much does it cost to recruit an employee?
There aren't any stringent guidelines when it comes to the cost of recruitment, and no one size fits all. Simply, some roles may be harder to fill than others, and your investments may need adjusting.
However, as a guide, the Chartered Institute of Personnel and Development (CIPD) put the median average cost-per-hire of recruiting senior managers and directors at £3,000 and £1,500 for all other types of employees [1].
Examples of recruitment costs
Direct recruitment costs
Direct recruitment costs include recruitment adverts, agency fees, and reference checks for the new hire. These costs are absorbed within direct recruitment expenses.
Indirect recruitment costs
Indirect recruitment costs involve managing the recruitment process and related HR tasks, such as drafting job descriptions, reviewing applications, and conducting interviews. Temporary staff may need to be hired during the recruitment period.
How to reduce recruitment costs
There are a number of methods through which you can reduce your recruitment costs, including making the most of free tools and resources:
Job boards
Many job listing websites allow businesses to post basic vacancies for free. Entice prospective employees with engaging advert copy, and where possible be honest about the salary you're offering.
To increase your chance of attracting the right prospects, be clear on expectations, experience required and additional benefits offered.
In-house job adverts
You can also advertise job vacancies on your company website for no cost and promote them on your social media pages and encourage candidates to come to you directly.
If your website has a blog, consider investing some time in search engine optimisation (SEO.) Through SEO, you can increase the number of organic visits to your website just by writing good content. This, in turn, means more people are more likely to see the jobs you're advertising for on the careers section of your page.
Personal recommendation
Encourage your own employees to promote the job you're advertising for to relevant friends or professional connections. This is a simple but effective method used by many companies and, if viable, you can incentivise your employee's efforts with a bonus, should a recommendation lead to a successful new hire.
If it's not possible to offer a bonus, you might consider the American Express® Business Gold Card¹ which gets you 1 Membership Rewards® point for every full eligible £1 transaction on everyday business expenses. You can use points to incentivise internal recommendations for new hires as they're redeemable with hundreds of retailers across travel, retail and dining, as well as gift cards and gaming subscriptions².
Internal promotion and retention
Not only does internal promotion benefit your workforce, but it can also reduce recruitment costs. If you have someone that could be trained and promoted, this might be preferable and cheaper than starting from scratch.
Furthermore, sometimes a position may become available because an employee has decided to move on to a new role. Investing some time in retention strategies is also a good way to reduce potential recruitment costs as it prevents the problem from arising at the root cause.
How to calculate cost-per-hire
To calculate cost-per-hire, add both internal and external recruitment costs and then divide them by the number of new hires, as the formula below illustrates:
CPH = Internal Recruitment Costs + External Recruitment Costs / Total New Hires
For example, Company A, in need of 5 salespeople, spent £525 on internal recruitment efforts. These included £100 for promoted job listings and £25 per day for a full week of social media advertising. They successfully hired two candidates through these efforts. Additionally, Company A offered a £250 bonus for a successful word-of-mouth recommendation, which resulted in one hire.
However, two sales roles remained vacant for some time, prompting Company A to engage a recruitment agency. This incurred external costs of 10% of each new hire's first-year salary, totalling £5,000.
In total, Company A spent £525 on internal recruitment costs and £5,000 on external recruitment. With five new hires, their cost-per-hire averaged £1,105.
CPH = £525 + £5,000 / 5 New Hires = £1,105
Do you need to commission a recruitment agency?
Catherine Warrilow, Managing Director (UK) of Days Out, a ticket website for attractions and experiences across the UK based in Manchester, has always carried out all her company’s recruitment needs in-house, never paying for advertising or recruitment. “The most important part of the recruitment process is how the job descriptions and job ads are written,” she says. “You need to get across the personality and culture of the business in that headline paragraph because it’s the first thing people see and it’s what draws them in."
“In our job ads, we talk about things like whether you want to come to work ‘suited and booted’ or in your trackies, whether you’re a night owl or a morning person or whether you often get told to slow down because you're bursting with ideas. Ultimately, we want people with all those different attributes in our business."
Warrilow says that by posting these job ads on websites herself, she is confident of only attracting talent that will be the right fit for her company.
As well as free online advertising, Warrilow also hires via recommendations. Again, this is both free and helps ensure a new hire is a good cultural fit.
“Because of our hiring strategy, it’s a close-knit team with different strengths, but also loads in common,” she adds.
Seek out a specialist for hard-to-fill roles
If all of the above doesn’t work, or you don’t have the time and resources to make it work, consider using a specialist recruitment agency. Using a recruiter can be more cost-effective than you think it might be, explains Alex Dick, Managing Director of recruitment agency Alexander Lyons Solutions.
“Recruitment agencies, especially those that specialise in particular fields, have built up large networks of high-calibre people, so the chance of you getting the right person for the job the first time is much higher than if you used a more general search process,” he says.
Another advantage is that recruiters can get in touch with their contacts who may not be actively looking for a job, but may be a perfect fit for the role your business is offering. And they can help companies draw up job descriptions when they are unsure of what specific skills they are looking for.
“Then we will screen through the dozens of CVs that come in and only present the client with the candidates that are best suited to their company and position,” adds Dick.
“And, you don’t pay us if we’re not successful.”
1. If you'd prefer a Card with no annual fee, rewards or other features, an alternative option is available – the Business Basic Card.
2. Membership Rewards points are earned on every full £1 spent and charged, per transaction. Terms and conditions apply.
Source:
[1] CIPD, Resourcing and talent planning report, 2022