The new benchmarking data from the Society for Human Resource Management (SHRM) suggests that the average cost-to-hire per employee is $4700. However, employers claim the actual hiring cost is closer to almost 4x of their salary.
Recruitment costs refer to the total outlay an organization incurs while sourcing, screening, interviewing, selecting, and onboarding candidates. Given the steep jump between industry estimates versus the actual spending on the ground, calculating your recruitment costs is crucial to attracting top talent while avoiding overspending.
This detailed guide will walk through simple steps to calculate actual recruitment costs, provide a framework to determine your Cost Per Hire, and offer tips to optimize your budget.
Let’s get started.
First things first: Estimating the number of hires
Normally, you need to factor in growth projections and replacements and buffer for attrition to arrive at a baseline for the number of hires in the upcoming year. Here’s how you should proceed:
- Meet with hiring managers to collect projections for headcount growth based on business objectives, new projects, and market expansion plans. Aggregate additions across groups.
- Factor in planned departures from scheduled retirements and resignations.
- Estimate unplanned turnover by applying historical attrition rates to current employees.
- Compare the projected number of hires to past offer acceptance rates to account for the offer decline rate.
If only 50% of offers historically convert, double projected hires. So, if you need to hire 40 people, you would need 80 qualified candidates in the pipeline.
How to calculate basic recruitment costs
Your basic recruitment costs typically include:
- The costs of publishing posts on job boards
- What you need to pay the recruiters
- What it’ll take to build a respectable employer brand
1. Job board and advertising fees
It's simple: calculate how much you’ve spent on job boards in the past, see what has worked best, and budget for the platforms that have helped you source great candidates.
If you’ve used a certain platform in the past with no results, feel free to leave that out of the budget.
2. Recruiter salaries and fees
Calculate fully loaded costs for each in-house recruiter, including:
- Base salary
- Health benefits
- Payroll tax
- Training
- Resources
- Estimated productivity loss from paid time off
With total costs per recruiter, you can also model the team size needed for expected hiring.
Let’s help you picture how this would go:
Jen is the head of talent acquisition at a healthcare technology company. She has two in-house corporate recruiters, Sanjay and Lisa. As Jen plans next year's budget, she tallies up the full costs for each recruiter:
Sanjay: $85,000 base salary + $22,000 benefits and payroll tax = $107,000
Lisa: $75,000 base + $20,000 benefits = $95,000
In addition, Jen factors in 30% productivity loss for PTO and training. So the total loaded costs are:
Sanjay: $107,000 + 30% productivity loss = $139,100
Lisa: $95,000 + 30% productivity loss = $123,500
So, the total fully loaded in-house recruiter costs are $139,100 + $123,500 = $262,600
3. Employer branding
Your employer brand is crucial for attracting top talent and securing offer acceptances. According to Glassdoor, demonstrating a good company culture can improve offer acceptance rates. So, investing in targeted efforts and allocating a dedicated budget is highly recommended to cultivate a compelling brand presence.
You should also:
- Allocate funds for events, university partnerships, and nonprofit collaborations that increase brand awareness
- Consider investing in content that highlights culture, values, and employee experience
- Go beyond generic job postings. Develop social media content tailored to specific roles.
For example, sponsoring targeted case competitions and hackathons related to your industry can directly surface specialized, interested talent.
Calculate your fixed recruitment costs: A breakdown for accurate budgeting
Fixed recruitment costs include costs incurred from campus recruitment, agencies, and assessment tools.
1. Campus recruitment
Look at past conversion rates from specific school programs, previous career fair yields, and sponsored case competition hires. See what actually produces hires, then optimize spending accordingly.
Let’s picture this:
Ravi heads talent acquisition for a technology consulting firm looking to hire 100 graduates next year. He assesses options to meet university students.
Ravi has historically sourced 35% of grad new hires from job fairs. With 35 hires from fairs projected, attending five fairs at $3,000 per fair would cost $15,000.
For deeper campus partnerships, Ravi evaluates sponsored capstone projects for deeper campus partnerships, paying $5,000 each. If sponsoring six projects leads to 30 hires, it would cost $30,000.
Combining job fairs and sponsored projects is projected to deliver 65 hires for $15,000 + $30,000 = $45,000 in campus recruitment. The remaining 35 hires can come from LinkedIn and the company career site.
2. Agencies and recruitment process outsourcing
Your team could use external recruiting help during peak hiring season. So, plan for it. Vet agencies carefully — are their fees indeed justified compared to managing in-house? For this:
- Shortlist agencies according to their per-placement fees
- Look for agencies or RPO providers with a proven track record in your industry
- You should also consider the quality of candidates the agencies have access to
- Calculate your internal recruiters' total cost-per-hire to compare agency ROI
Let's sketch out how it could happen:
Lee manages talent acquisition at a rapidly growing software startup. She relies on external recruiters to source and screen technical candidates. On average, each outsourced recruiter fills three roles per month.
Lee projects hiring 180 engineers next year, or about 15 per month. At three monthly hires per recruiter, she would need five dedicated agency recruiters working full-time at three monthly hires per recruiter.
Typical fees range from 18-22% salary contingency. With an average engineering salary of $125,000, Lee budgets five recruiters x 12 months x 3 hires per month x 20% of $125,000 salary = $562,500 for next year's agency spend.
3. Assessment tools
Imagine you need 100 hires. Before interviews, you want screening assessments to filter candidates. How much might that cost?
First, estimate the number of applicants expected. Targeting 100 hires, you forecast 500 applications.
Next, research vendor pricing models. Say this comes to:
- Skills tests: $2 per test candidate (one-time)
- Video interviews: $20/month for unlimited (subscription)
Calculate based on the expected volume of hires:
- 500 skills tests x $2 one-time fee = $1,000
- $20 monthly subscription for video interviews
- Total budget = $1,000 skills tests + $20 video subscription
The $1,020 gets you pre-screening all 500 on skills and video to surface the best 100 for further interviewing before making hiring decisions.
Think of it this way:
Javier is responsible for recruitment at a 500-person manufacturing company. They anticipate high volume hiring for assembly line roles next year.
To screen candidates efficiently, Javier researches skills testing and video interview tools. He estimates evaluating 1000 applicants for 100 open roles, quoting vendors based on per-applicant pricing.
For skills testing, eSkill offers customizable assessments at $1.50 per test. For video interviews, HireVue charges $5 per on-demand interview.
With 1000 applicants, Javier's budget is 1000 x ($1.50 + $5) = $6,500 for pre-hire skills and video assessments next year. This allows rapid screening before more costly in-person interviews.
Miscellaneous hiring costs: What they are and how to calculate them
These costs often extend to:
- Relocation packages
- Employee referral program incentives
1. Relocation Packages
Some companies offer new hires financial incentives to relocate for a position. These can include:
- Moving assistance — helps cover costs of moving household goods
- Temporary housing — hotels, corporate apartments
- Travel reimbursement — for candidate and family trips to find permanent housing
- Signing bonuses — one-time payments to take position
Typical budgets depend on the position and relocation needs.
2. Employee Referral Programs
Budget for programs that reward employees for referring candidates who get hired. Employees receive a monetary bonus, gift card, or other reward if their referral gets hired. Rewards are often structured in tiers, with higher payouts for harder-to-fill jobs.
Make smarter hiring decisions: Calculate your cost per hire for better budgeting
After estimating your recruitment costs, from job boards to salaries and events, the key metric to calculate is Cost Per Hire (CPH). This measures your overall hiring efficiency.
To calculate CPH:
- Add up total spending on everything recruitment-related
- Divide total spending by the number of hires you expect
An example would be:
Total recruitment spending budget = $100,000
Projected hires = 40
$100,000 / 40 = $2,500 CPH
You can also compare your results to industry benchmarks. Here are the benchmarks to compare against by company size:
- Small business CPH = $4,000-$6,000
- Mid-size business CPH = $2,000-$4,000
- Large corporation CPH < $2,000
If CPH comes out excessively high, reevaluate the budget to cut ineffective areas. If well below, you’ve probably been a little too optimistic about your hiring volume projections.
Turn cost analysis into action: Interpret and optimize your spending
Once you've calculated your recruitment CPH, use it to identify ineffective areas of spending:
- Assess job board performance on driving applicant volume/quality hires
- Compare productivity between internal vs. contingent recruiters
- Analyze event marketing costs vs. offer acceptance rates
Here are some examples of reallocation opportunities:
The goal is to shift budgets from low ROI activities to ones with a better return on investment and hiring performance. This lets you optimize overall recruitment costs per hire.
Maximize your hiring budget: Spend smarter, attract top talent
When you practice continuous insight-driven budget reallocation, you make it possible for yourself to run an efficient, high-performing talent acquisition machine. The steps we've outlined serve as fuel to keep the hiring engine humming.
While recruiting costs are complex, remember that vigilance, creativity, and analytics pave the road to better budget management. With the tools provided here, you can feel confident in your ability to:
- Forecast investments accurately
- Track return on spend diligently
- Shift dollars where they count
Put this framework into practice and embrace data-driven budgeting to give your organization a clear advantage in the race for top talent.
