With numerous businesses large and small looking to cut hiring spend, the need to optimise your recruitment costs has never been more crucial.
It’s hard to know where to start when reducing recruitment costs. This all-encompassing guide gives you the knowledge, tools, and processes you need to effectively reduce your recruitment spend, and get better value from your budgets.
Still have questions? Book a free demo with us and we’ll show you how exactly to improve your recruitment spend in more detail.
Understanding recruitment costs
If you want to reduce recruitment costs, having a solid understanding of what contributes to these costs is key. Many businesses use a basic cost-per-hire formula that calculates obvious recruitment metrics – but you want to avoid this. By neglecting other important, less visible metrics, your business could be completely miscalculating recruitment spend. 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 common measurements like time-to-hire (sometimes used synonymously with time-to-fill), but we strongly recommend that 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.
Using online media channels to advertise roles is frankly the easiest recruitment cost to calculate. It’s also the figure most often (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 are usually seen as a necessary evil when all other options have been expired, 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 3rd 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:
Poor cultural fit
Workplace culture has become increasingly important to businesses, with 86% of CEOs and HR leaders confirming this in a recent Deloitte survey. 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, a phenomenon where one employee’s poor attitude can lead to conflict and less cooperative decision-making in the workplace. While this kind of bad hire often leaves on their own volition, the financial impact is clear.
An employee who simply doesn’t have the skills or experience to perform well can also impact your costs. Unlike poor cultural fit, this person may enjoy their role, but continually struggle to meet the expected standard. While providing support and training for these 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”. Again, while this kind of bad hire will eventually leave, they take an average of 18 months’ salary with them.
Year 1 attrition
Understanding the cost of your attrition rate can help you figure out what needs improving in your business, and importantly, your recruiting strategy. Beyond the obvious financial impact, a high attrition rate can also affect your business’s morale, as remaining employees may start questioning if they should leave too, and in some cases, good people will leave to get away from the bad hire.
Now that we’ve gone through the different recruitment costs, what’s the best way to measure and calculate your cost-per-hire?
Cost-per-hire is a very important but widely misunderstood metric. Calculating this accurately is important for managing your recruitment strategy and allocating budgets. 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.
Now you know how to calculate your cost-per-hire, you can better pinpoint areas to reduce your recruitment spend.
In-house recruitment vs outsourcing
One of the biggest questions businesses have is ‘do I recruit in-house or outsource?’. While many opt to outsource recruitment, this can become one of the biggest costs to your business. Yet, recruiting in-house also traditionally comes with its own cost of internal 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 actually 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.
Adopting an omnichannel approach that mixes cost-effective tactics like fixed price services, media brokerages and advanced software is one of the most effective ways you can reduce your overall recruitment spend.
The rest of this guide acts as a starting point on ways optimise your in-house recruitment, so you can stop allocating too much budget to agencies. This segues us into how to optimise your recruitment budget.
Optimising recruitment budgets
There are two main factors you should consider when optimising recruitment budgets:
- Spending more wisely
- Optimising recruitment performance
1. Spending more wisely
Spending recruitment budgets more intelligently can save your business a significant amount of money and generate better results.
Evidence-based media selection
Spending budget on the wrong media channels is a very common recruiting mistake. Take an evidence-based approach to media selection, and research which channels are statistically most 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.
Buy advertising media from a broker, rather than directly from the media channel will give you far more exposure for the same or less cost. Some media brokers specialise in advertising optimisation techniques too, so you not only get more visibility, but also convert more prospects into applications. It’s a double win when done correctly.
Fixed price recruitment
A fixed-price recruitment service simply 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 can 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 recruit without any up-front 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 invite them to reconsider your latest vacancy.
2. Optimising recruitment performance
Optimising your recruitment performance saves you time, resources, and attracts the right talent to your roles. An efficient recruitment process not only creates a better applicant experience, but also minimises the risk of your competitors beating you to the best talent.
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 applicant traffic is going to look for jobs. An evidence-based approach to recruitment will save you the cost of purchasing the wrong media, in the wrong place, at the wrong time.
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 will indicate that you might be in the right place, and whether you need to apply advanced keyword optimisation techniques. It’s also a simple way to establish what the competition is offering to attract the best talent.
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 that influences performance
The recruitment technology you use can greatly improve your applicant quality and costs. 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 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 talent attraction technology to overcome this issue.
- To save on the cost to talent attraction associated with a poor ATS, the following technology is crucial for automating lengthy processes, attracting talent to your pipeline, and determining the outcome of your recruitment campaigns.
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-poster technology like Broadbean 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, machine learning and predictive analytics
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 use semantics and predictive analytics to 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.
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.
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.
Note that these technologies only replace the administrative and mechanical aspects of recruitment. The cognitive processes that you apply on top are what will optimise performance at each stage in the recruitment lifecycle, and ultimately save you time and money.
Avoiding applicant drop-off
The typical drop-off rate during the application process is between 60-80%, and when applicants drop-off, the cost of time and resources is high. It also tends to be the strongest applicants who are passively viewing roles who are more likely to drop out of the process. This subsequently 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, which found 45% of candidates searching for jobs via Facebook drop-off immediately when they are taken off the platform and onto a registration page of any description.
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. Implementing CV parsing software will automatically screen applications so you don’t need to ask lengthy questions, AI ranking will help you identify and get in touch with talent quicker, and so on. The golden rule here 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 responses at each stage 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?
It’s also important to nurture candidates who don’t end up getting the role too. A PwC survey revealed 78% of these candidates want an explanation if they’ve been turned down; this is important because candidates share their negative experiences, which can damage your reputation and cost you talented candidates in future.
If your declined applicants are also potential customers (think retail, hospitality, travel, events, etc) then think about not only declining these people professionally and courteously, but 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 is implementing processes that attract prospective candidates into your pipeline. We’ve spoken about some ways to do this, like optimised and engaging job adverts, appropriate media channel selection, multi-posters, and advanced screening technology. These all attract talent by getting your roles in front of more appropriate candidates and improving 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 is everything that happens in the recruitment timeline, from talent attraction to offer and onboarding. Attracting talent is a major part of reducing recruitment costs, but how you nurture that talent all the way up to onboarding is important for avoiding drop-offs and bringing talent into your business.
It can be daunting to know where to start with implementing a talent acquisition strategy into your business. Luckily, a talent acquisition platform like Smart Recruit Online can do the work for you. The platform comes integrated with key talent attraction features like multi-posters, an optimised job advert generator, and the ability to build a cv database (talent pool), as well as more sophisticated talent acquisition elements like cv parsing, AI and machine learning software, automated messaging, video pre-screening tools, behavioural assessments and more, all on one efficient, cost-effective online 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 look out for, 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
Reducing your recruitment costs isn’t going to happen overnight, but it is relatively straightforward. Optimising your in-house recruitment process is one of the most effective ways you can achieve this. By implementing the tools and processes we have discussed in this guide, you will be able to optimise your budgets, automate time-consuming tasks, attract and nurture the right talent, and reduce your recruitment spend.
It’s important to continue to look beyond upfront costs like media and agencies, and consider the long-term impact of things like making a bad hire. This will have the largest impact on your recruitment bottom-line, and adopting an overarching talent acquisition strategy ensures you attract and hire the best talent.
So, what are you waiting for? It’s time to reduce your recruitment spend. Remember to bookmark this post as a resource to answer all your recruitment costs questions!