In our recent blog, ‘7 Tips to reduce recruitment costs,‘ we looked at ways businesses can reduce their operational cost of recruiting and streamline processes by using the right methodologies and technology. While very important, it’s often just the tip of the iceberg – we estimate as much as 45% of recruitment costs are HIDDEN, others suggesting even higher.
This blog identifies those hidden recruitment costs that are badly impacting your business and offer ideas and guidance on reducing them. Now, before we can reduce those identified costs, we need to first measure and understand them.
(BTW: If you want an immediate handle on measurable costs then download our free recruitment budget calculator)
There are typically 2 categories that contribute to your recruitment costs:
The Known Costs
- External expenses e.g. advertising ($X for Y weeks), or recruitment agency (ususally a % of salary)
- Dedicated recruitment / Talent Acquisition team members
- Technology and HR-Tech (Applicant Tracking Systems, Assessments, Video interviewing, Referencing, Aggregators. etc)
- Physical interview costs (location facility, travel costs. etc.)
- On-boarding costs (induction and training facilities, or specialist training staff)
These are relatively easy to identify, measure and optimize to benefit the recruitment budget.
HR-Tech is one of the most powerful changes a business can make to enhance their success (see our article on digitizing your selection process.)
Many businesses entirely overlook the onboarding and training processes. Those that do implement them tend not to link the costs to recruitment budgets. Getting this wrong can lead to your new employee being disappointed, untrained and poorly performing – ultimately walking straight out the door again. After investing so much, you’re no further forward; it’s immediately back to the recruitment pre-selection stage?
Going into the actual detail of on-boarding and the associated costs is a large topic in its own right and but here’s an article from Monster that might help. Now, to help with your onboarding planning, we believe this great article might help you with your planning – Employee retention: The first 30 days
The Hidden Recruitment Costs
- Poor quality applicants
- Interviewing of substandard candidates
- Productivity loss and cost of real time for Line Managers, Execs, Peers
- Revenue lost from unfilled positions; especially direct contributors to the top line – what is the knock on effects of the time to hire?
- Hiring the wrong person altogether
Now, it gets a little more difficult for organizations to measure these. With so many variables, how do you measure what are the significant costs to the business? Often these only become visible costs after the recruitment process breaks down – then it is too late.
Poor quality applicants. Occurring early in the recruitment process, it’s easily fixed and the impact of failure while bad, may not be disastrous. It is important this mistake isn’t repeated. So try to understand why this happened – are you using the wrong forums, is the messaging or remuneration wrong? Reworking this stage may take a little time, but it will save far more time and money in the long run. Measure the cost of repeated advertising fees.
Interviewing substandard candidates. At best, one or more of the candidates you interview are unsuitable, at worst they are all terrible ! With many individual reasons why this has happened try to analyze and look for trends; only then can you identify and correct the cause. Otherwise the entire recruitment process repeats again and again, with ever rising costs. Consider your process up to this point :
- What has been the cost of getting candidates to this stage (advertising, testing, etc.)?
- How much time have interviewers spent preparing, conducting and reporting back? Time is money!
- Have you paid any interview expenses (travel, accommodation, etc.)?
- Has your brand been negatively affected?
- Loss of quality candidates on the market during the inaccurate shortlisting time?
As you can see making mistakes even at this stage can be costly to get repeatedly wrong.
Productivity and time lost – (Let’s consider all interviewers; line manager, his boss, assessor, exec(s). and even peers. There can be 15-30 interview hours (often more) for each vacancy and that excludes travel! The old saying, “time is money,” couldn’t ring more true at this point. Adopt slick streamlined processes from the start. Effective HR-Tech can solve this.
Revenue lost from unfilled positions. Take the example of a Sales Manager vacancy – it can be a lengthy process to secure the right person. Now consider how much potential revenue to the business this empty seat is losing every day it is unfilled? Maintaining a balance of quality hiring and efficient timely processes is key here. A slicker recruitment process could save an entire month (or more) of lost sales.
Hiring the wrong person altogether – This could have the greatest impact on the business. You can measure the impact of the time lost for those involved, the incremental costs of recycling the recruitment process and significant productivity losses. The potential unnecessary costs can run into $10000s. While these costs are more obvious, what is the cost to your company of morale, employee frustration, performance, client frustration, etc..
Only when you dig deeper into your Recruiting Budget can you begin to understand your true costs.
Can your business really afford NOT to know its true cost of recruitment ?
We have developed a Recruitment Budget Calculator to help you identity and measure your recruitment spend. It’s a simple excel document that’s completely free for you to use.