The True Cost of Hiring
The True Cost of Hiring
an overview of traditional hiring methods
Adriano Herdman -
Co - Founder
Hiring is costly, there’s no way around that. It costs in pounds, time and resources.
When working out the true cost of hiring (as well as how to minimise it), these factors tend to balance each other out. Commit more of your own time to sourcing to save money, or pay out and let someone else do the legwork.
However, as with most things, it isn’t always that simple. At Move, we understand that hiring isn’t something you do once and it’s finished; it’s an ongoing process that can be made more streamlined (and therefore faster, better, and more cost-effective) over time. Equally, the money you throw at something doesn’t always translate to speed or quality of outcome.
With all of that being said, we wanted to try and give a brief overview of the traditional hiring methods; doing it yourself, using recruitment agencies, and hiring an internal recruiter; to look at how much they truly “cost”.
Taking on the burden for hiring is often a company’s first thought (and ours!), particularly if you’re a start-up and profits aren’t exactly rolling in. Doing it yourself has the least direct costs and no need to budget for recruiter fees. The biggest cost of this method is time, however, it’s often the sheer amount of time you (and your team) would have to spend that is underestimated...
Jose Guardado, from VC firm “Y Combinator”, estimates that it takes 36 hours to hire one person. That’s almost a week of wages that your company’s spending on whoever’s doing the hiring, before considering how much of their normal job they’d have to drop (and who needs to pick that up!).
How much does DIY cost?
In simple terms, your cost is worked out by multiplying the number of hours spent on hiring by the hourly salary of the person(s) doing the hiring.
So if it took 36 hours, someone on a £50k salary (c.£25/hour) hiring 1 person would cost £900.
That seems like a bargain!
It sure does, but rather than looking at the salary associated with the time you’d spend on hiring, it’s much more important to consider the opportunity cost to the business. Determining the true value of your output is a lot harder, and we’re sure it’s not something you’d like to undervalue either!
On top of this, we often find that companies doing it themselves fail to consider a number of other factors that affect the amount of time it takes to do it yourself:
How senior is the person you're looking to hire?
Broadly-speaking, the more senior the role, the harder they are to find. Conversely, the more junior the hire you’re making, the more applications you’ll get AND the more time you’ll have to spend sifting through them.
How specialised is the role?
Again, more specialised roles can be done by fewer people, so you may need to post your job on a specialist job board in order to find these people yourself.
How strong is your employer brand?
If you’re a well-known, desirable company to work for, you could see a decent amount of direct applications just from posting your job on your own website and social channels.
Who do you know?
If you’re active at events and meetups, or even on LinkedIn, you may already have a strong network of people you can attract or ask for referrals. Or encourage your employees with a referral scheme to further increase your reach!
All of these factors can have a huge impact on how long you actually have to spend hiring.
Say you don’t know anyone at the level you’re looking to hire, maybe this job didn’t even exist a year ago… where do you start? This is where you might want to consider a specialised job board, which could set you back <£1000/job.
Or maybe your role sits in a very candidate-rich market, so you advertise your job and come in the next morning to 500 applications (we’ve seen it happen!)... how long’s it going to take to sort through and reply to them all? If you’ve got a lot of applicants, an applicant tracking system can help you sort through and keep track of the applications you want as they progress through your process. An ATS like Workable costs £40/job/month.
Recruiters get a bad rap, but we’d like to make a case for our comrades. Whatever you want to call it; ‘pay on placement’, ‘pay on success’ or 'contingency’ recruitment agencies can be one of the fastest ways to hire, especially if you’re briefing good recruiters. Good recruiters have good reputations, so if you don’t already have a few you rate make sure to talk to your colleagues and connections for referrals.
How much do recruiters cost?
Contingency fees in the UK start at 15% (rising to 30% or more for senior hires).
So one hire with a salary of £50,000 could cost your business between £7,500 and £15,000 in fees alone (n.b. some agencies also offer money back guarantees if your new recruit doesn’t work out)
Isn’t that a lot of money?
Yes, briefing a recruitment agency is definitely your most expensive option. However, they’re also the option with their finger most on the pulse in hiring, with the breadth and depth of search to get candidates quickly for almost any role. And for each one they send you, they could be assessing 5-10 others who don’t quite turn out to be what you’re looking for.
Consider these factors to make sure you’re getting the most out of your recruiter(s):
How many recruiters are you dealing with?
It can be easy to think “the more the merrier”, but there are potential pitfalls to this plan. The more recruiters you deal with, the more time you’ll spend briefing and giving feedback to them. And if your recruiter knows they’re one of many, this increased competition could mean they’re less likely to give your role priority.
How much are they charging?
You can negotiate with recruiters, especially if you can give them exclusivity as a provider, and/or release multiple roles for them to work on. However, beware the false economy of low fees. It’s often a get-what-you-pay-for situation if an agency you’re dealing with is happy to drop their fees for no reason
Have they set expectations?
A good recruiter will have a sense of the market you’re hiring in, and can give you an idea of the salaries you should be looking at, as well as when and how many potential candidates you can expect from them.
"the money you throw at something doesn’t always translate to speed or quality of outcome."
Hire to hire
Hiring an internal recruiter could give you the best of both worlds (although you may still have to use one of the first 2 options to get an internal resource in the first place!). Having a Talent Acquisition Manager on staff can bring huge savings in hiring, you’ll also have someone on site dealing with all the legwork and implementing process (not insignificant, as we’ve already seen).
How much does hiring with an internal resource cost?
This person’s sole purpose is hiring people, so we don’t need to worry as much about how many hours they spend hiring, just how many hires they make.
The basic formula for the cost of hiring with a TA Manager is cost of TA Manager divided by number of hires made. Which presents another question…
How much does a TA Manager cost?
Yes, we’ve got to pay them a salary, but as a member of staff you’ve also got employer costs to take into account, as well as a recruitment hire if you used an agency to hire them.
The average salary of a TA manager is £55k, so your employer costs are £5,955pa (13.8% of taxable income as NI) and a recruitment fee at 15% is another £8,250. So that’s £69,205 in costs for their first year.
Another thing you’ll need to bring in-house with your recruitment resource is tools. A LinkedIn recruiter licence, job posting credits, and access to an ATS could easily set you back another £8-10k per year.
Okay, that’s starting to add up...
It is seeming a bit pricey right now, but the value you get will entirely depend on how many hires you make in the year. The number of hires you make will have no effect on how much your TA costs (up until having to hire an additional one!).
You also get the advantage of having someone who can get really under the skin of your company’s needs, can implement long-term process, and who are dedicated to your hiring needs alone.
If you need to make a lot of hires in one go rather than spreading them out over time, having an internal recruiter on staff all year might not be the best choice for you. In this case, you might want to bring on a freelance TA Manager for a shorter engagement. Their day rates are higher than the pro-rata equivalent of a FT salary (expect between £250-400/day) but it can still work out cheaper than having someone on full time, especially if your full-time hire would be twiddling their thumbs 6 months out of the year!
A new alternative
As you can see, each hiring option comes with its own benefits, risks, and costs (whether upfront, on delivery or a little more discreet). The need for some sort of trade-off with whichever solution you choose is why Move came to be. Our model centres on the provision of a dedicated talent team, bringing together the resources, tools and network of an external agency with the visibility and accountability of an internal resource. With a straight-forward monthly subscription, our clients are able to make unlimited hires, with easy access to every candidate in the process and a direct line to their talent team. Through this model, our clients have seen huge savings time and time again, as well as long-term improvements to the way they hire.