Are you having a hard time calculating the amount of money spent towards recruiting new employees? You’re in luck - in this guide we’ll go over recruitment costs and show you how to calculate what the most cost effective recruitment option is for you.
Let’s get started.
How much does it cost to fill a role?
A metric that’s often used to illustrate the total cost of filling one role is cost per hire.
Cost per hire (CPH) can vary greatly depending on the role, location, size of the company and more. That said, there are many pieces of research that estimate the average cost of hiring. Here are a couple of them:
- A 2019 study by the Society for Human Resource Management concluded that the average cost of hiring an employee in the US is $4,129.
- Zippia calculates that in 2022 the average cost per hire is $4,425 while the average cost to hire an executive is $14,936.
If you want to calculate your CPH, you can use SHRM’s cost per hire formula.
Internal costs are recruitment costs within the company such as salaries of employees or referral program bonuses. External costs include payments for products or services provided by external providers (e.g agency fees). When calculating CPH consider your total number of hires for a certain period of time, e.g. one year.
This calculation will give you an average cost per hire for your company, although senior or specialised roles will cost more than junior roles or ones that are easy to fill.
Recruitment costs you should consider
We’ve broken down the main recruitment costs into the following categories.
Salaries or fees
Your most important and highest recruitment cost will be to pay the professional responsible for recruiting. The options are:
- In-house recruiter - If you have an in-house recruiter (or you’re having an HR employee recruit), this cost is their salary plus additional benefits, training and equipment. Given that they’re your employees, you should consider the onboarding time, sick leave and paid days off. This is called productivity loss and it usually amounts to 30% per year.
- Recruitment agency or freelance recruiter - Many companies use external recruiters to fully outsource recruiting. Some decide to get support for certain parts of the process only (e.g. sourcing). Whatever the case, the agency or recruiter fee is your cost. Fees of external recruiters can be pay-per-hour rates, a % of the employee’s salary or fixed fees (or a combination of those).
We’ll come back to this and show you how to calculate these two costs in the second part of the article.
Common in-house recruitment costs
There’s a good deal of costs associated with recruitment. We’ll cover the most common ones. It’s important to note that these are costs primarily associated with in-house recruitment. This means that when working with an external recruiter, some of these costs will be calculated in their fee and you don’t have to worry about them. For example, if you’re outsourcing recruiting, you likely won’t need to pay to post on job boards.
- Employee referral fees - Applicable for all businesses that have developed an employee referral program.
- Job boards - If you want your job post to be visible in places like Indeed, MeetFrank, LinkedIn, Monster or other niche boards, don’t forget to include this cost in your budget.
- Social media ads - If you want to attract more candidates, ads could be an effective and budget-friendly option.
- Recruitment tools - There are plenty of tools to support every step of your hiring process. From applicant tracking to screening, video interviewing and skill assessments (find our tool suggestions here). Although helpful and timesaving, the costs for these tools can add up.
Additional recruitment costs
Depending on your recruitment strategy and the size of your company, you may have some extra costs. Examples include:
- Event costs - If your strategy relies on job fairs or other events, the cost of organizing or participating in these events is an important one. Events are mostly attended and organized by large corporations, not so much by small companies.
- Employer branding - Although not always covered in recruitment cost breakdowns, employer branding could include the cost of attending specific events or creating content to establish your brand such as videos and social media posts.
Calculate your recruitment costs
Your costs will depend on your hiring strategy and whether you’re recruiting in-house or outsourcing. We’ll cover two options and calculate costs for an in-house recruiter and external recruitment partner. Follow this template to calculate which option works best for your budget.
We’ll show you the calculation based on the following example (it’s based on a real example - calculations we’ve done for one of our clients).
Location: Let’s say you’re an Estonian company looking to hire abroad in Eastern or Central European region. You’re planning on hiring 10 employees in the next year.
Role: To keep it simple, we’ll say you’re looking for 10 mid-level developers.
Option 1: You hire an in-house recruiter
The costs that you should include:
- Yearly salary including benefits
- Equipment and training cost
For our example, the costs are:
- Annual salary ranging between €40.800 and €45.600
- Equipment and training costs ranging between €2000 and €4000
In-house recruiter cost (low range)= €40.800 + €2000 = €42.800
In-house recruiter cost (high range)= €45.600 + €4000 = €49.600
So, the annual cost of the in-house recruiter would be between €42.800 and €49.600.
Keep in mind that this is the cost for the recruiter only, but if you’re hiring in-house you’d have to count in the common recruitment costs (discussed above) that apply to you.
These could include:
- Tools such as an Applicant Tracking System, e.g. Workable standard monthly subscription ~ €236/mo
- Job boards, e.g. MeetFrank starter monthly subscription - €379 (this cost could be €0 if job posting to boards is included in your ATS),
- and any additional costs applicable to you (advertising costs, referral bonuses…)
For the total recruiting cost, add these costs to the annual cost of the in-house recruiter.
Total recruiting cost = In-house recruiter cost (€42.800-€49.600) + your in-house recruitment costs.
📌 Pay attention to the productivity loss
A productivity loss is a loss in output of the company due to employees’ days off, sick days, training, onboarding and all the days when work is on hold.
These days typically account for around 30% of productivity loss. That means that although the salary cost stays the same, the output isn’t the same every month and thus, there is a 30% loss yearly. This is different from outsourced freelancers or agencies who are only paid for the time they work.
Option 2: You hire a recruitment agency/freelance recruiter
In this case, the agency fee or freelancer fee is your cost. The fees vary based on location, type of role, number of roles and pricing models.
Here are some fee examples from our platform:
- 3 employees hired in 1 month for a total cost of €6600 (e-commerce, Germany)
- 13 employees hired in 4 months for a total cost of €64.000 (various software development roles, Estonia)
- 1-3 roles per month + ATS setup for 48€/h (multiple roles, USA; Estonia)
There are three main fee models in recruitment:
- Hourly fee - you pay the recruiter per hour of the work they put in.
- Fixed fee - a flat fee per hire.
- Contingency or success fee - you pay a % of the new employee’s annual salary if the recruiter finds the candidate.
Here are fee ranges by geographical regions so you can estimate yours.
So, how much does it cost to hire a recruiter?
The following calculation is pretty simple. You just multiply the fee by the number of roles.
In our example, it went like this:
- 10 roles
- Fee of a senior recruiter in Poland (hourly fee) = €2500 - €4000
External recruiter fee (low range) = 10 x €2500 = €25.000
External recruiter fee (high range) = 10 x €4000 = €40.000
So, the total cost for an external recruiter would be anywhere between €25.000 and €40.000 for 10 roles.
Let’s compare the results
Option 1) Annual in-house recruiter cost: €42.800 - €49.600 per year + in-house recruitment costs
Option 2) External recruiter for 10 roles: €25.000 - €40.000
As you can see, in this case it would be more cost effective to hire an external recruiter. The lower rate for an external recruiter is €25.000 compared to €42.800 for an in-house one. For the higher range, the difference is a bit lower with €40.000 for an external recruiter and €49.600 for an internal recruiter.
This is just one out of endless examples. Your numbers could be much different from ours depending on your location and role. Plug in your numbers into the formulas to get your cost.
Should you choose an in-house recruiter or an agency/freelancer?
As we’ve seen in the previous example, it is quite possible to calculate which option would be more cost effective. The result will often be that it makes more sense to hire external help if you don’t have too many roles to hire per year. But, if you have a larger number of yearly hires such as 30, an in-house recruiter can be a better option. Don’t forget that there’s also a limit in how many roles a single in-house recruiter can fill. The limit is usually between up to 4-6 positions per month.
Other than the cost, there are a few things to keep in mind:
The start of recruiting
External recruiters can start recruiting soon after you decide to collaborate with them.
In-house recruiters have to go through onboarding first.
In most cases in-house recruiters are generalists who can work on many different roles. On the other hand, external recruiters often specialize in a certain role or industry and become experts for specialised or hard-to-fill roles.
In-house recruiters are a part of the company so they take the win when it comes to knowing the best team and culture fit.
To learn more, check out our webinar - Recruiting: When to use external help and when to expand your in-house team?
What’s often overlooked when budgeting recruitment costs?
When we talk about costs, monetary costs are what comes to mind. This makes perfect sense since monetary costs are obviously essential for any type of calculation. However, there are a few more “costs” we need to worry about when it comes to recruiting.
Time spent on recruiting
Completing all the tasks that lead to filling one role is time-consuming. Whoever’s responsible for it is going to spend a huge chunk of their time on recruitment tasks which means less time for non-recruitment tasks.
Cost of getting a bad hire
There’s a ton of ways to save money on recruitment. While you should always aim to lower your costs, by no means should you try to cut costs that will sacrifice your quality of hire. Trying to save on recruitment will cost you more in the long run.
We’re hoping that our breakdown of costs with formulas and examples will help you calculate your own. Wrapping up with one last piece of advice - make it a priority to collaborate with recruiters who are knowledgeable. Even if it seems costly at first, finding a reliable recruiter (we can help with that!) will pay off as they are the key to bringing qualified hires to your team.