Finding a good employee is challenging and expensive. This might pose an issue for businesses, especially smaller ones, who need staff but may be finding hiring costs too high. Here, we’ll help you uncover winning tips to reduce hiring costs and optimize your recruitment budget.
The True Cost of Hiring
Hiring is the process of finding, attracting, selecting, and integrating a new employee. Costs include advertising, screening candidates, interviewing, training, and even turnover. According to the Society for Human Resource Management (SHRM), the average cost per hire is around 4,700 USD.¹ This is a large figure in itself and becomes even more alarming when you consider that many small or midsize enterprises cannot easily accommodate this cost without a significant impact on their bottom line. Here’s what makes up the cost of hiring:
Recruitment Costs
Recruitment involves identifying and hiring the most suitable candidate to fill your open position. Recruitment can drive up the cost of hiring significantly. You need to factor in costs like fees charged by job boards, referral bonuses, or relocation fees if your new hire lives in a different geographical location. And then, of course, you also need to factor in your staff’s time!
Onboarding Costs
According to Statista, businesses in the U.S. spend between $1,000 and $1,420 on new employee training.² Here, the soft costs come into play. How much time do your HR professionals spend developing and delivering training programs? What are the productivity losses associated with getting new hires up to speed?
Productivity Ramp-Up Time
New employees typically take some time to reach full productivity. The lost productivity during this ramp-up period can be considered a cost of hiring, as more seasoned employees may need to spend time assisting the new hire or covering tasks.
Potential Turnover Costs
The cost of replacing one individual employee can cost up to two times the employee’s annual salary, a staggering figure when you consider that voluntary attrition is completely avoidable.3
These individual costs together make up your Cost Per Hire (CPH). This metric helps you quantify the return on investment in your employees. This helps you examine your hiring and recruitment process to determine if it works for your business or if you need to change strategies.
Factors Affecting the Cost of Hiring
Multiple factors may be impacting the cost of your hiring and recruitment process. Here are some of them outlined below:
1. Location
If your business is in an urban area with a high population, you will likely have access to a wider talent pool than if it were in a rural area. It also may help to have your business in an area near your competitors to attract their local talent, as we see is the case with Silicon Valley start-ups. Situating your business in an urban area may drive up hiring costs, as more candidates to interview inevitably elongates the recruitment process and culminates in more money spent, but it helps you find more qualified talent that needs less training. The local demand for your open position and the cost of living in that area can also increase your hiring costs.
2. Company Size
If you’re a larger business, a job opening in your organization would naturally attract a larger number of candidates. A higher volume of candidates to screen impacts your hiring costs and may cause your recruitment process to be more expensive; however, having more applicants also decreases the costs of having to advertise the job on various job boards.
3. Industry
Industry-related factors directly affect the cost of recruitment. If your industry involves highly technical skills with steep learning curves, your hiring costs might be significantly higher since you have a much smaller and much more in-demand talent pool.
4. Job Role
The job role you wish to fill can also affect your recruitment costs to a substantial degree. Hiring for an executive role, for example, may require a much stricter screening process to accurately assess candidates’ competence level and organizational fit. Recruiting for an entry-level position probably does not require the same level of rigor.
5. Market Conditions
The labor market is cyclical. When there are more candidates available, you generally have to spend less time and money to find candidates. Specific market conditions often affect different industry sectors at different times affecting the recruitment costs for companies within those sectors.
How Much Hiring the Wrong Employee Costs You
Another factor that could raise your recruitment costs even more is hiring the wrong employee. A bad hire could not only potentially soil your company’s reputation and cost you productivity, but it can also leave a hole in your business’ productivity as you seek to find a replacement. According to Career Builder, one bad hiring decision could cost your company as much as 15,000 USD.4
How to Reduce Hiring Costs
Here are four smart ways to cut down hiring expenditures and optimize your hiring budget:
1. Utilize Recruitment Software
One of the easiest ways to cut hiring costs is to use software to automate manual tasks. An Applicant Tracking System (ATS) can help save your HR team the hours they would use to screen candidate resumes and manually store candidate information because it can perform these tasks for them.
Additionally, using social media, such as LinkedIn, to attract and gather your ideal type of candidate may save you some time and energy in the hiring process, as well as some money. Most social media channels are free or with optional add-on purchases for exposure.
Lastly, transitioning from physical interviews to virtual modes of interviewing, such as phone and video calls, helps you reduce your recruiting costs. Furthermore, many candidates may find virtual interviews more accessible and less intimidating.
2. Encourage Employee Referrals
Instead of mobilizing many resources to seek out fresh talent, you can use your current employees to attract candidates. To do this, you can implement a referral program, which will allow your current staff to earn some stipulated benefit for recommending talent to your organization. You can document these recommended candidates for future positions, even if you don’t currently have an opening. Seeking employee referrals can be particularly effective since no one knows the work and culture in your company more than your current employees.
3. Outsource Recruiting
Many companies simply choose to entrust your hiring needs to a reputable hiring company. A good recruitment agency can be particularly effective if you don’t regularly engage in recruiting and don’t have an established candidate pool. Peak Performers is a great staffing partner for all your hiring needs! Since 1994, we’ve filled over 30,000 jobs. We have extensive staffing and recruiting experience and will connect you to your perfect candidate!
4. Focus on Retention
Another effective way to reduce hiring costs is by prioritizing employee retention and creating jobs your staff can truly be proud of. Lower turnover saves your business time and money. By actively fostering employee engagement and job satisfaction, you’ll build loyalty and keep your top talent on board for years to come.
HIRE FASTER, SAVE SMARTER WITH PEAK PERFORMERS STAFFING SOLUTIONS
Peak Performers specialize in finding the right talent while keeping hiring costs under control. With over 30,000 successful placements, we offer a range of staffing solutions to fit your needs, from temporary staffing for short-term projects to direct hiring for permanent positions. We also offer dedicated executive search services to find the right leadership candidates.
What truly sets us apart is our mission to advance disability inclusive hiring. We believe a diverse workforce is a stronger workforce, and we have the expertise to connect you with qualified candidates with disabilities who can bring unique perspectives and valuable skills to your team. Contact us today and discover how we can help your business thrive by finding high quality talent.
References
- Stephen Miller, “SHRM HR Benchmarking Reports Launch as a Free Member-Exclusive Benefit”, SHRM, 11 April 2022, www.shrm.org/topics-tools/news/benefits-compensation/shrm-hr-benchmarking-reports-launch-free-member-exclusive-benefit.
- Statista Research Department. “Training expenditure per learner in the training industry in the United States from 2015 to 2023, by company size” Statista, 17 Nov 2023, www.statista.com/statistics/795795/training-expenditure-per-learner-and-company-size-us/.
- Mcfeely, Shane, and Ben Wigert, “This Fixable Problem Costs U.S. Businesses $1 Trillion,” Gallup, 13 March 2019, www.gallup.com/workplace/247391/fixable-problem-costs-businesses-trillion.aspx.
- “Nearly Three in Four Employers Affected by a Bad Hire, According to a Recent CareerBuilder Survey,” Career Builder, 7 December 2017, press.careerbuilder.com/2017-12-07-Nearly-Three-in-Four-Employers-Affected-by-a-Bad-Hire-According-to-a-Recent-CareerBuilder-Survey
