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Recruitment Cost Calculation: Maximizing Your Strategy Budget

Updated: Dec 12, 2023

Ever wondered how your recruitment strategy budget could work smarter, not harder? You’re not alone.

The intricate process of maximizing, or even simply calculating recruitment costs can be a daunting one. But fear not! This guide will break down the complexities of cost calculation and empower you in determining the most cost-effective recruitment strategy for your organization.

Gain Insight with Cost per Hire (CPH)

Before deciding on your recruitment strategy, understanding how much replacing an employee or making a new hire is the crucial first step.

Cost per hire (CPH) is the average cost of hiring an employee, and can vary significantly based on factors such as the role, geographic location, company size, and other variables. You can calculate your annual cost per hire with this formula:

Keep in mind that this calculation serves as an average cost-per-hire metric for budget planning purposes, instead of a benchmark of each hire’s cost.

Now that we know how to calculate Cost per Hire, let’s delve into the topic of recruitment costs.

Estimating Recruitment Costs

Recruitment costs are broken down into two main categories - internal and external.

Internal Recruitment Costs

These costs are mainly associated with in-house hiring efforts. Thus, when engaging with an external recruiter, some of these costs are factored into their overall fee, without the need for your further concern.

  1. Recruitment Tools - Digital tools such as Applicant Tracking Systems (ATS), skilled assessment tools, that contribute to overall efficiency of sourcing, evaluating and managing potential candidates

  2. Job boards - Remember not to miss out on platforms like Indeed, LinkedIn, and other niche boards

  3. Cost of overhead + benefits - Salary, benefits, equipment and other similar costs involved for maintaining the internal recruitment team

  4. Employee referral fees - For existing employees who refer candidates that are subsequently hired, companies often allocate a budget for referral fees. This enhances the recruitment reach through active participation.

  5. Office costs (if any) - This is especially relevant for larger organizations with designated recruitment spaces.

External Recruitment Costs

This encompasses hiring a recruitment agency or a freelance recruiter - which essentially constitutes your external recruitment cost.

​📢 Engaging with a recruitment agency offers advantages such as cost savings, increased recruitment process efficiency, as well as improved hiring outcomes. Their expertise and extensive network contributes to a streamlined hiring process, and an ease of mind.

In recruitment, there are three primary fee structures:

  1. Contingency or Success Fee - This model involves paying a percentage of the newly hired employee's annual salary to the recruiter upon successfully securing the candidate.

  2. Hourly Fee - Compensation is based on the recruiter's hourly efforts, with payment corresponding to the time invested in the recruitment process.

  3. Fixed Fee - A predetermined, flat fee is charged for each successful hire, providing a clear and consistent cost structure.

Overlooked Factors in Budgeting Recruitment Costs

As companies bury their head in intricacies and costs of hiring, there are two main important factors that are often overlooked.

  • Substantial amount of time invested throughout the process - This is a reminder that time is still an important resource allocation. Calculation of the man-hours spent on sourcing, screening, and interviewing candidates provides an overall, more accurate picture.

  • Training resources - These include training materials, mentorship programs and other initiatives aimed at integrating employees seamlessly into the organization.

Concluding Tips

We trust that our guide has empowered you to confidently calculate and optimize your recruitment budget. If you find yourself still unsure about the best strategies to maximize your budget, consider this piece advice - selecting the right recruitment agency.

Selecting a reliable recruiter is crucial for the success of your recruitment efforts, and in this aspect, you can confidently count on us! Our dedicated team at Talentvibe offers unmatched expertise in tailoring recruitment solutions to meet your specific needs.

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