70% of businesses report that competition for well-qualified talent has increased in the last year, and 77% reported difficulties attracting experienced candidates, up from 49% the previous year.
With two thirds of organisations anticipating an increase in recruitment and talent management costs in the next year, how can HR and TA teams measure the typical costs within their business and, more importantly, how can they make the most of their budgets while still attracting the best talent to the business?
The value of a good hire
The true cost of recruitment
Calculating cost per hire
Building a recruitment budget
The hidden costs of recruitment
How to lower the cost of recruitment
Increase staff retention and lower turnover
Broaden your talent search
How we can lower your cost of recruitment
Hiring the right person reduces your costs in the long term. That’s true whether you’re weighing up the cost of repeated rounds of recruitment, the speed to competency of the new hire or the broader impact on the team picking up the slack.
Added to this is the productivity and performance impact of the right person. A McKinsey study found that Superior talent is up to 8 times more effective, and the more complex a role, the wider the gap becomes.
Productivity gap between average performers and high performers, by job complexity, %
It’s possible to quantify the quality of hire using several metrics, with scoring from performance reviews and appraisals the most widely used. Other common measures include retention rate, productivity stats, 360 feedback scores, promotion rate, rate of salary increase or bonus achieved.
When we talk about the cost of recruitment, the cost per hire is one obvious element. But the cost to the business is much broader than this, with many factors making up the whole cost of recruitment.
Estimates for this cost can vary widely. CIPD estimates the average cost of filling a vacancy, including labour costs, is £6,125. For a manager role, these figures rise to £19,000.
However, that figure can be significantly higher for more senior roles, especially if recruitment is outsourced.
Cost Per Hire, or CPH, is the average spend on making a hire. This covers all recruitment costs to get an employee to day 1. It does not factor in training or onboarding. To calculate your Cost Per Hire, add your internal and external recruiting costs in a given period and divide by the number of hires in the same period. This is the standard formula developed by the Society of Human Resource Management (SHRM) alongside the American National Standards Institute (ANSI).
CPH = (Internal recruiting costs + External recruiting costs) / number of hires
Internal recruitment costs include the salaries of internal recruitment professionals and pro rata salaries of internal staff who spend a proportion of their time on recruitment activities.
You should also include:
The main external costs are for any temporary cover required, and of course for recruitment agencies. Traditional recruitment agencies can charge 20-30% of the starting salary, which for a role commanding a salary of £120,000 would equate to £24,000 to £36,000 simply on agency fees. At TIG, we do things differently. There are no placement fees, only a flat rate for the time we invest in the search.
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Working out your internal and external recruitment costs and calculating your Cost Per Hire is the first step towards building a recruitment budget. The next step is to work with relevant stakeholders, such as hiring managers and department heads, to project the number of hires in the coming year or period. To do this, consider skills gaps, growth plans and turnover rates.
You can calculate a ballpark figure by multiplying your projected hires by your current Cost Per Hire. However, there may be efficiency savings to be gained. For example, you may have an internal resource that is not maximised, or you may not need to reinvest in branding materials that were refreshed the previous year. To gain a more granular understanding, consider each line item of your internal and external costs, whether they are still required, in what quantity, and whether discounts are available for working at scale.
It’s worth noting that larger operations can often work to a lower Cost Per Hire, especially when averaging across a mix of high-volume junior positions and low-volume senior hires. Smaller businesses often have a higher Cost Per Hire, as they don’t have the volume discounts, and the positions they fill are often more critical given the growth stage and potential impact of each role.
Data shows that a poor hire at the mid-manager level with a salary of £42,000 can cost a business more than £132,000 to resolve, so it’s essential to get the right person for the job.
The cost of lost knowledge and expertise is rarely discussed, but this is also a hidden cost to business that is almost impossible to quantify. When established or expert employees leave, the company loses their knowledge. This loss could take the form of institutional knowledge of processes and ways of working or more specialist expertise.
Again, a focus on retaining your top employees is vital. Ensuring adequate documentation is in place and sufficient time given to a handover process can also offset some of the impact of this loss of knowledge.
Data shows hiring costs can vary from 12% for an in-house team to 22% for an agency-led solution. As in-house teams become increasingly stretched, it is often necessary to outsource recruitment. However, there is an alternative to the traditional recruitment model and the associated percentage fees.
Talent mapping and talent search can be much more cost-effective, allowing businesses to have full sight of the best talent in the market, regardless of whether they are actively seeking a new role. In addition, our costs can be significantly lower, as they are based on the work required rather than a percentage of the salary. As an example:
In addition, we don’t charge placement fees, so companies can fill multiple roles without incurring any additional costs.
There are many ways to improve staff retention. Here, we focus on salary benchmarking, building the vision, investing in wellness and finding the right fit.
With competition for talent crossing sectors and staff turnover continuing to run at a high rate, getting your salary and benefits package right is critical. Recent surveys show organisations increasingly offer better pay and benefits to address recruitment difficulties.
54% of employers reported using this tactic in 2022 compared with 32% the previous year. Salary benchmarking key roles helps ensure your offer is competitive in this environment. Our process includes a wider look at the total remuneration package and the basic salary. Take a look at our salary benchmarking guide for more insight into this process.
Businesses are also reducing talent acquisition costs by investing in developing the skills of their existing employees and optimising internal mobility.
Nearly two-fifths of organisations (38%) are increasing efforts to meet their talent requirements by developing in-house talent, and upskilling existing employees is the most common response to recruitment difficulties (60%). Fourty-six per cent of employers reported offering apprenticeships, a quarter offer internships, and around a third have graduate schemes and post-A-Level entry routes, plus career returner and mid-career-change programmes.
In this competitive environment, a clear Employee Value Proposition is critical. Your Employee Value Proposition includes your purpose and values, as well as your approach to career development, flexibility, compensation, culture, community and the working environment. A strong EVP ensures candidates know who you are, what you offer and why you’re different from the competition. It communicates how what you offer coincides with what prospective employees are looking for.
Supporting employee wellness is essential to maintaining a healthy work environment and a well-resourced team. Gallup reports that burned-out employees are 63% more likely to take a sick day and 2.6 times as likely to seek a different job. Implementing a wellness program has multiple benefits for businesses, including reductions in absence levels, improvements in productivity and the ability to attract and retain talent.
However, one of the key elements that impacts overall retention rates is right at the start of the talent lifecycle: finding suitable candidates who are a good fit for your business needs. Honing in on your staffing gaps and finding candidates who are the right cultural fit is imperative in maintaining high retention levels, and in many cases, finding the right cultural fit can be more important than finding someone with the right skill set. By maintaining a broad talent pool and reaching out to passive candidates, companies can increase the calibre and quality of their candidates and improve their odds of finding a high-performing and long-lasting employee.
By having a broad talent pool and reaching out to passive candidates, companies can increase the choice of quality candidates and improve the chances of finding someone who is an excellent fit for the business. See how we help our clients to do this.
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Finally, with a rise in remote working, opportunities are opening up to broaden locations, which can help reduce the hiring time for specialist roles where skills may be in short supply locally. If your business is located in a capital city, it may also be possible to reduce the cost of additional salary weighing by recruiting an employee to work remotely. Data from Mercer shows that 30% of businesses are considering location as a way of managing talent availability and cost.
Our services help clients win the war for talent, whilst reducing recruitment costs. We can help you:
Here’s how we’ve helped our clients save time and money on recruitment.
We saved our client £36,500 vs a traditional approach and provided valuable business insights to guide their strategy.Learn more
Our client was looking to recruit a Knowledge Manager, a newly created role within the organisation. We were engaged to find the best available talent for the role.Learn more
Our client was struggling to fill the role and believed location and a lack of local talent was the issue. We challenged these perceptions and within six weeks had found the ideal candidate.Learn more
Our client needed to find a senior leader to manage a key aspect of the transformation and asked us to carry out a global search to locate the right person.Learn more
We filled the role in just five weeks and our insights led to a change in messaging to better fit the market.Learn more
Our client reduced their costs by over 50% while gaining an understanding of the market and successfully filling the role.Learn more