When times are uncertain, it becomes essential to drill down on any spend and recruitment costs are no exception. In this blog, we look to identify what costs are involved when recruiting, the factors that should be considered and the true cost of a hiring mistake or taking too long to fill a vital vacancy.

What is your cost per hire?

Simply defined, “cost per hire” is the total amount spent in resources when recruiting a single person to your business. Whilst this can include external charges linked to sourcing candidates and vetting etc it is also the costs associated with internal resources such as internal recruitment teams, recommendation or referral schemes, talent acquisition systems and HR. According to Glassdoor the average cost per hire in the UK is £3000 and to work this out exactly for your own business you can follow this simple formula;

External Costs + Internal Costs / Total Number of Hires in a Time Period

How do I calculate my external and internal costs?

External costs:

These would include any of the following;

  • Agency fees
  • Job boards
  • Publications
  • LinkedIn spend
  • Qualifications / DBS Check
  • Talent profiling

Internal costs:

  • Time spent – If you have an internal recruitment team or talent acquisition manager then you can easily use their salary and costs of package. However, if you are using the services of an employee who is not in the business purely to recruit, you need to calculate the entire time spent by this individual on the whole hiring process from sifting, interviewing through to training and induction out of their salary. It would also be prudent to add in any other staff member’s time that has been involved to get an accurate cost. It’s worth noting here that the more applicants you are getting, interviewing and vetting to reach a successful conclusion, the more this is costing you.
  • ATS – If you have taken the plunge and invested in an Applicant Tracking System then you can include the annual costs of the subscription.
  • HR – if you haven’t already included above, perhaps you use the services of an external HR provider to assist in your hiring process when it comes to issuing paperwork, contracts etc and therefore this needs to be added to your formula.
  • Recommend a Friend – some companies offer a bonus incentive when a friend or relative is successfully employed and the sums seem to differ massively depending on how generous the company is.

Another factor to note here is the impact of hiring on your other members of staff – is the vacancy impinging on their workload and adding more pressure to team members.

Equally while recruitment fees often have rebate periods attached, it is impossible to claw back any of the above internal costs should the person withdraw or not work out after commencement.

Not sure whether to go external or stay internal? Have a look at this blog on the pros and cons of agencies vs in house methods.

What happens when you get it wrong?

We’ve established that regardless of the methods used, hiring a new employee can cost a significant amount of money so what could be the wider financial impact of getting it wrong?

As well as the external and internal costs that you have calculated above, the hidden cost of a bad piece of recruitment also include;

  • Resources spent on onboarding and training
  • Lost productivity of other team members
  • Possible increased staff turnover as an indirect result
  • Threat to employer brand

Hiring mistakes can occur for a variety of reasons and Richard Branson himself says that when it comes to things going wrong in business, you shouldn’t blame the people, you should blame the process.

Before recruiting, it is essential to ensure that you have a very clear idea of the role you want to fill and the skill set and type of person that would be required to fill it. If you go into the scenario being vague, you are running the risk of getting it wrong down the line. What’s more, if you don’t know what the role requirement is, how can you map out the correct skill set and how can you test in your hiring process that the candidates meet the requirements?

It has been reported that four in ten employers admit that their interviewing and assessment processes should be improved which means a staggering number of companies are “winging it” when it comes to hiring. It is worthwhile investing time in creating a robust interview process and training the hiring managers on carrying this out effectively.

If you know there are flaws in your hiring process but not sure where they may be, check out this blog for ideas on how to recruit effectively.

What is the cost of an unfilled vacancy?

When weighing up the costs involved with hiring for your vacancies, it is important to balance this with the cost to the organisation of having an empty seat! It is reported that the average time to hire (using an agency) is 27 days although I would argue it is considerably more for some technical roles and it can take up to 28 weeks for a person to be up to full capacity in their new position. When you consider that the person who may have left could have gone off the boil a good month before handing in their notice, their output could have already dramatically reduced.

Let’s look at a good workable example of an individual working in the recruitment industry who decides to look elsewhere and then leave. The average income target of a recruiter is £10,000 per month but feel free to apply your own average target to the example below to work this out for your own vacancy.

MonthScenarioSales output
JanuaryBecomes unhappy in role£10,000
FebruaryFocus shifts to looking elsewhere£8,000
MarchHands notice in£6,000
AprilWorking notice period – company starts to look£4,000 (if you’re lucky!)
MayPrevious employee leaves – haven’t yet recruited£0
JuneNew hire starts but is training£0
JulyNew hire starting to build pipeline£1,500
  • Normal Sales Output in 7 months – £70,000
  • Actual Sales Output in 7 months – £29,500
  • Difference – £40,500 (lost sales revenue)

Whilst this is a sales example, HR professionals calculate the monthly value of any role to an organisation being 3 times an annual salary, divided by 12 months.

These sums I have given above are generous compared to what can happen in reality so what you must ask yourselves in business is; how long are you willing to leave a role unfilled before you take a short team hit in cost to fill? How does your agency fee compare to lost revenue over a period of seven months?

I think larger companies have become very effective in building talent pools for certain types of roles but I would highly recommend that an audit of hiring is carried out, looking closely at time to hire against every role. If you identify that sales or technical roles take longer than a month on average, you could be well placed instructing experts to help you with those sooner rather than later.

There will always be costs attached when hiring or replacing staff but these can be managed effectively if you spend the time evaluating your own individual strengths and weaker areas on a regular basis. If you know you will always need employees to function, it is purely a matter of time before you recruit so avoid a costly knee jerk mistake and as with anything, get prepared and prepare to succeed.

Here at Elite, we are experts in the entire hiring process and enjoy spending time with clients helping them to resolve any problems. If you want to know more, please do get in touch today!