What you need to know about the True Cost of Recruitment (UK)

What you need to know about the True Cost of Recruitment (UK)

In this blog, we’re going to explore what the true cost of recruitment is, the different types of recruitment costs, and how you can reduce yours. 

“Recently, I was asked if I was going to fire an employee who made a mistake that cost the company $600,000. No, I replied, I just spent $600,000 training him. Why would I want somebody to hire his experience?” – Thomas John Watson Sr – Chairman & CEO of IBM


The above is a tongue in cheek statement that carries an important truth. Most applicants are under qualified for a job, and many learn to do the job – on the job itself.  


Many recruiters and hiring managers may know how much they spend on external agencies, or on job boards – but that’s not the only cost of recruitment.  


Unfortunately, many recruiters don’t have the full picture, and because of that can’t lower their spending. As the famous management consultant Peter Drucker once said, If you can’t measure it, you can’t manage it.”  


This blog will give you the tools to manage it.  

🡢 Free Download: 4 Recruitment Metrics you should be measuring [Access Now]

Table of Contents

What are recruitment costs?

Recruitment costs are any costs to a business during the recruitment process. They may involve the following:

  • Time-to-hire (the time it takes your team to hire a candidate)
  • Advertising media (the media channels you choose to advertise your vacancies)
  • External agency fees (the fees you pay to an external agency to use their services)
  • Onboarding & training (onboarding & training new hires)
  • Wrong hires (hiring the wrong candidate)
  • Employee turnover rate (the rate your employees/hires leave within a first year of being hired)


With all the above in mind, it’s no surprise recruitment costs can tally up fast. Let’s explore what cost UK businesses can expect on average to hire an employee. 


The average cost of recruitment in the UK  

The average cost to recruit an employee in the UK is around £3,000. But this will vary based on the experience of the employee and many other factors.  


Junior staff and graduates will cost less, but managers and more experienced staff will cost more.


Other factors include the size of your company. If your company is a smaller business, it could cost more, with average estimates put higher at closer to £12,000. This is because smaller businesses don’t have the resources of large corporations, and mistakes will have a much more significant impact on a small business. 


Also, small businesses tend to be multi-tasking many different things at once, compared to large businesses where people have specific roles. Again, making the cost higher to employees in small businesses who have to take time out of their working day to focus on hiring. 

How much do recruiters cost?

Before looking at how much recruiters cost, let’s look at the different types of recruitment agencies you might come across. Look at the infographic below:

As you can see, the different types of recruitment agency services all have very different costs. They will vary depending on a few different factors, but 10 – 30% seems to be the norm.  


It’s no surprise these costs can start to add up. Though it can at first seem like a daunting task, building an in-house recruitment team will give you independence and save you money in the long run.  


One recruiter wrote here about how she saved £200k a year by building her own in-house team and using socials and job boards to their full potential.  


But it’s important to remember that this depends on your specific hiring needs. If you’re a volume recruiter, (someone that hires frequently throughout the year) then building an in-house team may be more cost-effective.  


If however you’re hiring less than ten people a year for very specialised jobs, turning to external agencies may be the more cost efficient option (instead of paying a full salary for an in-house recruiter).


How to measure your cost-per-hire

Your cost-per-hire calculates the average cost of a new employee. This is one of the most important metrics, because understanding your cost-per-hire helps you estimate the ROI for new hires and guides your HR / recruitment budgets.  


However, don’t just rely on cost-per-hire as your one and only measure of success. It’s great to keep recruiting costs low, but it’s not the be-all and end-all. Think of it more like a helpful benchmark to keep in mind, while you’re working on your company’s recruitment game plan.


The Formula

Here is how you can calculate your cost-per-hire over a 12-month period. 

How to reduce recruitment costs

There are many ways businesses can reduce their recruitment costs. Here are the most effective ways you can reduce yours.  


Stop relying on external agencies!

As we mentioned earlier, one of the first things you should look to do is stop relying only on external agencies. Whilst an instant move away will provide challenges, it’s better to slowly wean yourself off gradually. 


As you start relying on them less, you can build your own candidate pipelines and have an instant database of candidates to target.

Hire the right candidates

Now this one may have some scratching their heads, but hiring the wrong candidates can cost a business a lot of money.  


According to HR magazine, the financial cost of a bad hire can be up to three times as much as the bad hire’s yearly salary. And that’s only the financial.  


That doesn’t take into account the cost a bad hire could have on team morale, customer service and other areas of the business. All in all, you want to avoid making a bad hire. But how?  


With automated candidate screening tools, you can filter out unqualified candidates before the interview stage. From there, you have more time and control to make the correct decision in an interview (if it’s needed).  

Reduce candidate drop off

According to research, candidate drop off rates on average in the UK are around 71%. That figure is very high.  


With the majority of candidates dropping out of the recruitment process, you’re likely to spend more time and resources searching for more. This then increases your recruitment costs as well.  


So how can you avoid high candidate drop-off rates? Or minimise the number of candidates that drop out of your applications? Take a look at the table below.  

Reduce candidate drop-off

Using advertising budget wisely

Using your advertising budget wisely is a sure fire way to reduce costs.  


The first thing to consider is – who is your audience? For example, if you’re looking to hire a Warehouse Operative, you might do well advertising on something like Facebook. If you’re looking for a Data Protection Officer, you might be better off searching on LinkedIn.  


This same thinking applies to job boards. By testing responses from previous postings, you can begin to see which job boards are worth your money and time 


Have the right reporting tools

Without the data to know what’s working and what isn’t, it’s hard to improve. Most recruiters don’t have visibility over their hiring analytics, but luckily there’s software out there now that can help you track and analyse hiring KPIs.  


These can help you identify what areas of your hiring process are under-performing, and creating the most cost to your business.  


Only then will you have a clearer picture of what jobs struggle the most, which ones are doing well, and on what channels. Once you know those things, you can then come up with solutions to improve your business outcomes.


How can recruitment technology help?

So, how can recruitment technology help you reduce your costs? A recruitment system like occy centralises all the tactics we’ve covered in this blog, making it easier to hire in-house and reduce costs.


Whether it’s automatically screening candidates, advertising your roles across the right channels, or accurately reporting on your cost-per-hire – occy covers this from one, easy to use platform specifically designed for businesses who hire frequently throughout the year


You’ll also have access to other tools that help you source, filter, select and hire qualified candidates, all carefully selected to give your in-house recruiters back time, so they can focus on the human side of hiring again. 


Cost-per-hire is just one essential hiring metric you should be paying attention to if you want to improve business performance. Discover how to take your hiring one step further with the Recruitment Metrics Guide today. 

Don't forget to share this post!

You may also like