One important metric for any business, specifically with Human Resources, is time to fill open positions. HR professionals are zeroed into this metric, but often because it’s for their own performance. Why does it matter so much from a businesses’ perspective? Because it’s extremely expensive to not fill positions.
Spending on recruitment is a necessary overhead for any business, but how much measured making it difficult to minimize cost per hire without significantly sacrificing quality. Understanding total costs are just one factor that helps businesses understand what investment they need to make for each open position they create. The total cost will include salary, benefits, cost to fill the position, ramp up time, etc.
The average time to hire an average employee is 42 days. So if your business only hires average talent, for average positions, and has zero management – then you can expect to spend 42 days to fill your position. The reality is that higher-up, specialized and competitive positions take more than double the amount of time to fill and it is only becoming hard each day as we shift to a talent-competitive employee’s market.
Total recruitment cost is directly related to the amount of time spent recruiting, including HR time, management staff, etc. Additionally, you have overhead costs that accumulate the longer the job is open and often need to resort to outside resources to help find the right candidates. For this example we’ll focus on a position that we are actively trying to fill – but haven’t been able to fill quickly, meaning we’ll eventually utilize every resource available (internal recruitment, employee referrals, job boards, external recruitment, etc.). We’ll examine the costs associated with filling a $100k salaried position, with 30 candidates, over a 3 month period. Obviously, these costs will vary by location, job, etc.
HR Management Time
Before anything else, HR and internal staff will spend the time to fill positions. This time will include management of the ATS, searching for candidates, working with external recruiters, etc. These costs will change over a 90-day period, starting with internal recruiting efforts and often ending with external recruiters. If there is one person dedicated to this effort the breakdown is:
- ATS Management: 1 Job and 30 candidates (post, screen, track, etc): 16 hours
- Candidate Communication and Scheduling: 8 hours
- Internal Recruitment Prospecting: 16 hours
- Employee Communications and Internal Referral Management: 8 hours
- External Recruiter Management: 10 hours (+ unmeasurable headaches)
Pure management of this open position totals at 58 hours.
Total HR Cost at $50/hr: $2900.00
A commonly overlooked cost area is the amount of time spent interviewing. Even though you’re eager to fill seats fast, no one wants to waste time. Telephone screenings are still a must. The numbers below include time to schedule interviews and perform them.
- Phone Screening: 30 candidates x 45 minutes
- In Person Round 1: 10 candidates x 90 minutes x 2 Interviewers
- In Person Round 2: 3 candidates x 120 minutes x 3 Interviewers
- Final Due Diligence: 1 candidate x 120 minutes x 1 Staff
Your company will spend 72.5 hours interviewing for a single position – and this assumes you filled the position. The longer it drags on, the more interviews you’ll perform, increasing the amount of time spent. Our interviewees will range from peers to upper management. We’ll use a blended all-in cost of $75/hr.
Total Cost of Interviews: $5,437.50
There are many options available to post your job and to boost your own recruitment efforts. The most widely used tools are job boards, costing anywhere from free (good luck finding the right people with this) to premium.
Average Monthly Job Board Costs: $600 x 3 months
Total Job Posting Costs: $1,800.00
You may use recruiters all of the time, sometimes, or never, but after countless bad interviews and months of the position being open you’re almost guaranteed to engage with several external recruiters. Most recruiters work on a success fee – only getting paid if the position is filled. This mitigates your risk – but comes at a cost of 15% – 20%+ if the recruiter successfully filled the position. The longer your position is open, the more likely you are to exhaust internal resources, increasing the likelihood that you’ll pay out the success fee to an external recruiter. Don’t misinterpret this, good talent is worth the cost, and these external recruiters take on a huge risk with their time investment to only get paid if successful, but if this cost can be avoided it would be big savings for your business.
External Recruiter Success Fee ($100k position): $20,000
Total External Recruiter Costs: $20,000.00
Let’s not forget to mention the things that cost us in ways that are difficult to measure. While we can’t put a dollar amount on these, they are extremely important to keep in mind as they directly relate to the overall performance of the business and can be extremely costly.
Team Fatigue – Who is paying the price for this position not being filled? Are there longer days and late nights? Are the unsuccessful interviews making management feel broken? This may seem extreme but these situations are very real and only become amplified as the position fails to be filled.
Opportunity Cost – How much further along would your business be if you didn’t just spend hundreds of hours and thousands of dollars trying to fill this position? What you sacrifice by not filing this position in 30 days compared to 90 days?
Turnover – Too much fatigue? Frustration? Poor culture? These can add up to turnover (either short term or long term) meaning that the total costs can be significantly higher and the situation can snowball. Worst case scenario failure to hire can poison the well and create a costly cycle of hiring that could have been avoided.
Total Cost of Recruitment: $30,137.50
(Assuming you filled the position in 90 days)
In a highly competitive hiring market (like the one we’re currently in) this may not seem that bad. We’re jaded by decades of ever-increasing talent demand and associated costs. On a per hire basis, $30k (in addition to the cost of normal recruitment efforts) may be digestible, but if we zoom out and look at a growing business that fills 50+ positions like this every year we’re now investing an additional $1.5M+ in spend for recruitment.
Understanding this investment helps us understand how to improve the process. What would it mean to your business to reduce this cost to $5k per hire? How would you do it? Sourcing talent faster and eliminating your dependence on external resources can result in an 80% cost reduction for you hard to fill seats.
Reducing your recruitment costs for high-demand, high talent positions can save your business up to $25,000 per hire, adding up to hundreds of thousands of dollars a year to invest back into your business!