How To Reduce Recruitment Costs: The Complete Guide

So, you want to cut your hiring spend? This guide teaches you how to reduce recruitment costs without compromising your performance. 

 

It’s hard to know where to start when reducing recruitment costs. If you still have questions after reading this guide, book a free demo with us and we’ll show you exactly how to do it in more detail.

Understanding recruitment costs

If you want to know how to reduce recruitment costs, understanding what makes up these costs is key. Here we summarise all the factors you should consider.

 

Time and resources

Time is money, and with the average time-to-offer taking 27.5 days in the UK, the costs of this can be significant. You may be familiar with the time-to-hire metric (sometimes used synonymously with time-to-fill), but we strongly recommend you use the time-to-offer metric, as you usually don’t have any control over candidate notice periods.

 

An average time-to-offer will typically take 2-3 days of man-hours, at an average cost of £200 per day.

 

 

Advertising media

Using online media channels to advertise roles is frankly the easiest recruitment cost to calculate. It’s also the figure most (wrongly) quoted by businesses when presenting their ‘average cost-per-hire’ and should be defined as ‘media cost-per-hire’.

 

Paid media channels like job boards, local media, specialist publications and paid social media get your roles in front of a much bigger pool of applicants, so they are a great tactic to use.

 

You should always keep track of your media spend, as a record of this will also be useful for estimating ‘media costs’ for future roles.

 

Agency fees

Agency fees are usually seen as a necessary evil, particularly when internal team capacity is low or for harder-to-fill positions. While the cost of an agency can vary, standard fees range between 15 – 20% of the candidate’s first annual salary, even going up to 30% for harder-to-fill positions.

 

When your direct hiring strategy is not effective, these 3^rd party fees can seriously escalate, driving up your business’s average cost-per-hire.

 

 

Onboarding & training

You can’t really hire someone without onboarding and training them, so there is a powerful argument that this should be included in the cost-per-hire calculation.

 

This cost definitely needs to be included when there is attrition in the first year of employment, and a replacement employee duplicates this onboarding and training. This is usually the result of making a bad hire, which comes with its own high cost.

 

Making a bad hire

Hiring the wrong candidate can cost your business at least 30% of the employee’s first-year earnings, and can go up to as much as double this. When you add the resources spent onboarding and training this bad hire, and the time it takes to source a replacement when they eventually leave, this is no laughing matter for any sized business.

 

The damaging potential of a bad hire should be the driver for every recruiter to perform due diligence and minimise the risk of it happening.

 

 

There are two types of bad hires that can create a financial loss:

 

1. Poor cultural fit

   A recent Deloitte survey found 86% of CEOs and HR leaders see workplace culture as increasingly important to businesses. This is unsurprising, as an effective culture is said to create a 50% difference in performance between businesses in the same sector.

    

   A discontented employee can become distracting and affect your whole team’s performance. Psychologists call this emotional contagion, where one employee’s poor attitude can lead to conflict and less cooperative decision-making in the workplace.

    

2. Underperformers

   An employee who simply doesn’t have the skills or experience to perform well can also impact your costs. This person may enjoy their role, but continually struggle to meet the expected standard.

    

   While providing support and training for employees is important, underperforming employees can cost £39,500 a year on average. Even larger companies can’t afford this kind of bad hire, with Zappos CEO Tony Hsieh estimating they had cost the company “well over a million”.

 

Year 1 attrition

Beyond the obvious financial impact, a high attrition rate can also affect your business’ morale, as remaining employees may start questioning if they should leave too, or leave to get away from the bad hire.

 

Measuring cost-per-hire

Cost-per-hire is an important but widely misunderstood metric. Calculating this accurately is important for managing your strategy and learning how to reduce recruitment costs.

 

To avoid miscalculating your recruitment spend, we recommend you use the following cost-per-hire formula:

 

 

It’s important to remember that other hard-to-measure factors we’ve discussed are not included in this number. For example, the consequences of making a bad hire can greatly impact your bottom line, and should be factored into your recruitment budget.

 

In-house recruitment vs outsourcing

One of the biggest questions businesses have is ‘do I recruit in-house or outsource?’. Outsourcing recruitment can become one of the biggest costs to your business, yet recruiting in-house also comes with its own costs to time and resources.

 

So, which is the best option? The answer lies in optimising your in-house recruitment.

 

Optimising in-house recruitment

Recruiting in-house doesn’t have to be time-consuming and expensive. There are plenty of tools and processes available now that help automate time-consuming tasks, attract the right talent to your roles, and avoid candidate drop-off, all while reducing agency spend.

 

The rest of this guide explains ways to optimise your in-house recruitment, so you can start making more direct hires, and stop allocating so much budget to agencies.

 

 

Optimising recruitment budgets

Optimising your recruitment budget is all about spending money more wisely and optimising your recruitment performance. There are a few ways you can achieve both of these.

 

Evidence-based media selection

Spending budget on the wrong advertising media channels is a very common recruiting mistake.

 

Take an evidence-based approach to media selection, and research which channels are likely to work best for your business while reaching a large enough number of potential applicants.

 

We cover how to do this in the evidence-based decision-making section of this guide.

 

 

Media buying

Buy job advertising media from a broker, rather than directly from the media channel. This will give you far more exposure for the same or less cost.

 

Some media brokers specialise in advertising optimisation techniques too, so you get more visibility AND convert more prospects into applications.

 

Fixed-price recruitment

Fixed-price recruitment means you pay a one-off fee for a service, without the risk of an increased fee. This is a cost-effective approach that will typically cost 1/10 of a traditional recruitment agency, and provide even better value for money when you make multiple hires for the same fee.

 

Build a talent pool

Building a talent pool can help you hire without any up-front recruitment costs. Simply create a database of candidates who have previously applied for your roles and contact them when a relevant role is available.

 

A great tactic to re-engage these candidates is a video message that invites them to reconsider your latest vacancy.

 

Job advert optimisation

Online job adverts are still one of the most popular ways candidates discover opportunities, and a well-optimised advert can generate 3 times more prospective candidate views.

 

Ensure your advert will be found and displayed by search engines by using the most effective job title and relevant keywords that your ideal candidate will be searching for in the advertising copy, page title, meta description, and URL.

 

Once candidates find your advert, ensuring it is engaging and well-written typically converts 2-3 times more applicants than a simple job specification.

 

 

CV parsing software

It can be tempting to outline all the role requirements in your job advert to screen applicants out, but this can create uninspiring job adverts that put off talented candidates.

 

Using a CV parsing software that automatically screens and validates applications for ‘relevance’ will significantly speed up the recruitment process, while avoiding human error and unconscious bias. You’ll also avoid losing out on any applications by redirecting them to a careers or application page.

 

Evidence-based decision making    

There are many ways to determine where your ideal applicants are going to look for jobs. An evidence-based approach will save you the recruitment cost of purchasing the wrong media, in the wrong place, at the wrong time.

 

Search engines

Search engines like Google and Bing are the cheapest, fastest way to gain insights into where relevant applicant traffic is actually going. Simply search for roles in your sector, identify which job sites are ranking highest on the results page, and ensure that you advertise on those.

 

 

Check job boards

Checking job boards for the level of competition can help you determine whether to advertise there. High levels of competition indicate you might be in the right place, and whether you need to apply advanced job advert optimisation techniques.

 

It’s also a simple way to establish what the competition is offering to attract the best talent.

 

Seasonal trends

Consider seasonal trends when advertising your roles. Although job search activity dramatically increases in January, competition for the best talent also drives up costs.

 

If you are looking for top talent, and you advertise a role in December, you can typically pay £5k less for the same hire than if you advertised for it in January.

 

Recruitment technology 

The recruitment technology you use can greatly impact your bottom line. Good use of tech can save you time and resources, create better candidate communication, fewer drop-offs, and ultimately lead to better hires.

 

Going beyond standard ATS

Applicant Tracking Systems are used as standard to help recruiters collect and process applications. But with 48% of the best applicants dropping off due to a poor ATS experience, recruiters are turning to systems with additional talent attraction technology to overcome this issue.

 

This means going beyond simply storing and tracking applications, creating a fully-rounded hiring process.

 

 

CV parsing

CV parsing software automatically populates your ATS with each application received, through an efficient 1 click application process. This speeds up the process for candidates, as it avoids the need to fill out any lengthy application forms or complete pre-screening questions.

 

Multi-posters

Multi-poster technology lets you post your job adverts onto multiple job boards simultaneously. This is much less time consuming than posting individually on each platform, and many multi-posters also offer free posting across free-to-advertise websites.

 

They can also populate your careers page and post your roles onto social media and local media channels.

 

AI applicant ranking

Grading and ranking applicants is an essential yet laborious part of the recruitment selection process. But advances in AI technology mean this can now be done automatically.

 

Tools can screen applications for keywords, and match the best candidates to your roles while avoiding human error and unconscious bias. This alone can reduce around 80% of administration time spent screening out unsuitable applicants.

 

 

Automated messaging

Poor communication is damaging to the company brand, candidate experience, and one of the biggest causes of candidate drop-off.

 

Automated messaging technology makes communication easier, through email and SMS responses acknowledging applications, thanking candidates, and providing them with information throughout the application process. This helps keep interest in your opportunity, and avoid the cost of talent drop-offs.

 

Reporting tools

What gets measured gets improved, and tools that report on job advert and recruitment performance are a great way to ensure you’re getting value for money, and identifying where you can make improvements.

 

These tools report on conversion rates and indicate how well your adverts are working. They will also inform you where drop-offs are happening and where you need to up your game. You can then replicate well-performing adverts in future campaigns, and avoid the cost of poor advert performance.

 

Avoiding applicant drop-off

Typically between 60-80% of candidates drop out of the recruitment process. When this happens, your recruitment spend through time and resources is high.

 

The strongest applicants who are only passively viewing roles also tend to be the most likely to drop out of the process. This then increases the risk of making a bad hire, and the long-term costs associated with this.

 

Avoid platform redirects

Redirecting applicants from a job advertising channel to a careers or pre-screening page substantially increases the risk of drop-off. This was shown in research by The Recruiting Unblog, where 45% of candidates searching for jobs on Facebook dropped-off immediately when they were taken off the platform onto any kind of registration page.

 

Avoid lengthy pre-screening

60% of candidates quit a job application in the middle because it is too long or complex. Your pre-screening process should be as quick and simple as possible to avoid this.

 

Using CV parsing software will automatically screen applications so you don’t need to ask lengthy questions. AI candidate ranking can then help you identify and get in touch with talent quicker. The golden rule is to capture applicants first and ask questions afterwards.

 

Strategically nurture candidates

Around 58% of job seekers consider good communication the top reason for a positive candidate experience, and ultimately accepting a job offer. Failing to strategically communicate with passive candidates and nurture their excitement about your opportunity can lead to a loss of interest and drop-offs.

 

Using automated messaging at vital stages of the application process with well-crafted messages can easily counter this. Company video follow-ups are also a great form of engaging media, with a CareerBuilder survey finding roles with videos had a 34% greater application rate. What applicant wouldn’t want to ‘meet the hiring manager’ in a follow-up video?

 

 

You should try to nurture unsuccessful candidates too. This is important because candidates share their negative experiences, which can damage your reputation and cost you talent in future. 78% of these candidates just want an explanation, so providing this professionally and courteously is vital.

 

If your declined applicants are also potential customers (think retail, hospitality, travel, events, etc), why not use the opportunity to turn them into paying customers by offering some sort of exclusive offer as a thank you for applying?

Talent attraction vs talent acquisition

We’ve discussed the importance of talent attraction in this guide, but it’s just one part of what should be an overarching talent acquisition strategy that nurtures talented candidates, and reduces overall recruitment spend.

 

Talent attraction

Talent attraction is all about processes that attract prospective candidates into your pipeline, such as job advert optimisation and advertising channel selection. The goal is to get your roles in front of appropriate candidates and improve the initial application process.

 

You can’t leave it there though. Effective talent attraction means an increase in ‘passive’ or ‘social’ applications that need nurturing to avoid drop-off. This is where a talent acquisition strategy becomes important.

 

Talent acquisition

Talent acquisition is everything that happens in the recruitment timeline, from talent attraction to offer and onboarding. It helps reduce recruitment costs by nurturing talent, avoiding drop-offs, and bringing talent into your business.

 

It can be daunting to know where to start with talent acquisition. Luckily, a talent acquisition platform like Smart Recruit Online can do the work for you.

 

The platform comes integrated with key talent attraction and acquisition tools that help you make more direct hires, all from one, cost-effective system.

 

 

Fixed-price recruitment

Using fixed-price recruitment services is an easy way to create a cost-effective recruitment strategy, as there is no risk of an increased fee. Below are some of the key fixed-price services we recommend to get you started.

 

• Strategic Media buying (the right channels at the right price)
• Multi-poster technology
• Job advert writing and optimisation
• CV Parsing and AI ranking
• Video Screening
• Behavioural Assessments
• Interview management tools
• Outsourced managed services to assist with screening

 

Get started

Optimising your in-house recruitment so you can make more direct hires is one of the most effective ways to reduce your recruitment costs. Using the tools and processes in this guide will help you do this.

 

It’s important to also consider the long-term impact of things like making a bad hire too, and adopting an overarching talent acquisition strategy ensures you attract and hire the best talent to avoid this.

 

So, what are you waiting for? It’s time to reduce your recruitment spend, and Smart Recruit Online can help. Simply book a demo of our platform, and one of our specialists will be in touch.