What Is the Cost of Recruitment? (And How to Reduce It)

Updated 20 March 2023

The cost of recruitment is the accumulation of expenses incurred during the recruitment phase. These expenses can range from job postings to the salaries of the recruiters. Understanding the different types of hiring costs can help you develop a cost-effective recruitment plan. In this article, we discuss the answer to the question 'What is the cost of recruitment?', explore the different types of costs and provide helpful tips to reduce them.

What is the cost of recruitment?

Companies also refer to the cost of recruitment as a cost per hire. The universal formula for calculating the cost per hire is usually the sum of recruitment costs divided by the total amount of hires. For example, if you spend $10,000 on recruitment costs and hire 10 employees, your cost per hire would be $1,000. Below, you can find the two main categories of costs in recruitment:

Direct costs

Direct costs are expenses that relate directly to the production or provision of a service. A direct cost of recruitment could be advertising costs, health screening costs, travel reimbursements and training. Direct costs typically contribute the most to a business's cost-per-hire rate.

Overhead costs

Overhead expenses include costs that don't directly relate to production. Overhead costs in the recruitment process may be comprised of internal recruiter and marketing salaries, administrative costs and communication expenses. When calculating the cost per hire, many businesses include overheads from a specific period rather than an entire financial year.

What are the types of recruitment costs?

Below, you can find some examples of typical recruitment expenses:

Job boards: A common method of advertising career vacancies is by posting job adverts on a job board. The business generally has to pay a fee to display these advertisements.
Agency fees: A business may recruit new employees through a recruitment agency. These agencies typically charge a fixed price for their services.
Health screening: Some businesses require candidates to undertake a drug and alcohol screening. The business generally outsources the testing to medical centres that charge the business a fee.
Inductions: When an employee begins work in their new role, they may require a safety induction or workplace orientation. Inductions can increase the labour costs of the recruitment process.
Internal recruiter costs: Large businesses that regularly recruit employees may often have their own internal recruiting department. The salaries of hiring managers are often a large contributer to recruitment costs.
Website maintenance: Some businesses utilise an online recruitment process on their website. These systems often require a subscription fee to remain operational.

Why is the cost of recruitment important?

The main benefit of calculating the business' cost per hire is to ensure the recruitment process remains cost-effective. Knowing the recruitment fee for hiring a new employee can help the business formulate an effective recruitment budget. For example, if a business is opening a new store that requires 10 new employees, the business can calculate how much the process might cost and allocate an appropriate budget.

Calculating the cost of recruitment can also assist the business's decision-making process when recruiting. If the hiring manager knows how much they're spending on recruitment, they can decide if it's worth outsourcing the process to an external recruitment agency. If the business has a high cost-per-hire rate, the company leadership may consider reducing their relocation expenses and advertising costs.

How to reduce the cost of recruitment

Below you can find a helpful guide on how to reduce your recruitment fees:

1. Analyse recruitment decisions

Before you decide to hire new team members, it can be important to review your decisions. This can help you make cost-effective choices that benefit the company. Many aspects of the business can determine which recruitment method is best for the company. For example, a large company that's constantly hiring may have high expenditures on recruiter salaries. The most cost-effective decision in that situation might be to outsource the recruitment to an employment agency.

2. Reduce the cost of training

If you're hiring someone with minimal experience, they may require training. Potential candidates with work experience might have the skills and knowledge to fulfil the duties of the career. By employing candidates who require minimal training, you can reduce the business' cost per hire.

3. Implement effective inductions

An area of recruitment that may increase your hiring fees is the induction of new employees. You can lower the cost of your hiring process by setting up an online induction system. This can reduce the time that management spends on inducting new team members.

4. Provide appropriate salaries

If you're employing candidates who require extensive training, you may provide them with a training salary. Once the employee's training is complete, they're likely to have the skills and knowledge to conduct their duties. It can be a good idea to increase their salary as they progress through their training. This is often a good motivator for new employees to learn and develop their career skills.

5. Utilise cost-effective advertising

There are many different advertising methods which vary in cost. If you're trying to reduce the cost of recruitment, you can consider implementing a cost-effective advertising strategy. Posting on social media platforms can usually be cost-efficient and reach a large target audience. You can also consider creating a job posting on Indeed to advertise role vacancies.

6. Gain referrals from employees

To save time in the recruitment process, you can ask for referrals from employees that you trust. This can allow you to skip the procedures of finding a candidate and begin the interview stage. Gaining referrals from current employees often reduces the labour costs of recruiting new employees.

7. Improve employee retention

A long-term strategy for reducing recruitment costs can involve improving the business's employee retention rate. By reducing the number of resignations, you can reduce recruitment needs. An effective way to improve employee retention is by promoting a positive work environment. Healthy workplace culture can improve the job satisfaction of employees. Job satisfaction commonly reduces the likelihood of employees searching for alternative employment.

8. Utilise an ATS

An applicant tracking system (ATS) is an automated system that helps a recruiting department process job applications. The ATS scans cover letters and resumes for keywords. You can manually input which keywords you want the system to track. For example, if you're seeking candidates with great organisational skills, you can choose 'organisational skills' or 'organisation' as keywords. Using an ATS can reduce the time and labour costs of the recruitment process.

What is a good cost-per-hire rate?

The ideal cost-per-hire rate depends on multiple aspects of the business. If your team hires a small number of candidates and has good employee retention, your cost per hire may be relatively low. Achieving a good cost-per-hire rate usually means having an efficient and cost-effective recruitment process.

Examples of calculating the cost of recruitment

Below you can find the formula and several examples to help you calculate your average cost per hire:

Cost per hire = (internal recruiting costs + external recruiting costs) / total number of hired employees

High cost per hire example

A small manufacturing company is searching for a new production manager to fill a vacant position. The business has difficulty finding a suitable candidate, so they decide to outsource the recruitment to an employment agency. The agency finds a candidate and conducts an interview. The internal cost is the salary of employees involved in the recruitment and the external cost is the price of using an employment agency.
Internal recruiting cost: $4,000
External recruiting cost: $2,000
Number of hires: 1
Formula: ($4,000 + $2,000) / 1 = $6,000
The cost per hire of the business is $6,000.

Medium cost per hire example

A landscaping company is searching for a new team of employees to work remotely from the CBD. They require five new members and decide to utilise a job board to advertise the vacancy. The business receives several job applications and begins reviewing the candidates. There are many applications and the hiring manager asks one of their colleagues to help them review the resumes. The internal recruitment cost is high because of the labour expenses for reviewing applications. By using a cost-effective advertising strategy, the business could save money.
Internal recruiting cost: $10,000
External recruiting cost: $5,000
Number of hires: 5
Formula: ($10,000 + $5,000) / 5 = $3,000
The cost per hire of the business is $3,000.

What Is the Cost of Recruitment? (And How to Reduce It)