How to Reduce Cost Per Hire: 7 Hacks for Small Businesses in 2024
Businesses are getting more competitive day by day, so mastering the art of recruitment is like striking gold. However, there’s a catch – the cost.
Studies say, the average cost-per-hire in the United States is $4,129 and the case is quite similar in all the countries.
Attempting to reduce cost per hire is an important strategy to guarantee your business thrives without breaking the bank.
Imagine finding the perfect candidates, the ones who drive your company forward, and doing so without depleting your finances. That’s the power of efficient recruitment.
On one side, there’s the need for top-notch talent, on the other, the reality of a budget. Striking this balance is no small feat. Often, companies find themselves lost in a maze of recruitment costs.
This guide is your roadmap to find out how to reduce recruitment costs. It’s packed with practical, straightforward strategies that cut down recruitment costs while still attracting the right candidate for you.
Let’s dive in and discover how to make your recruitment process not just cheaper, but smarter and more strategic.
What Is Recruitment Cost?
Recruitment costs contain a variety of expenses that a company incurs while searching and hiring new employees. These costs form a substantial part of the company’s budget and can incorporate a range of activities and resources.
Advertising job vacancies is one of the primary costs. It involves costs for posting on online job boards, newspapers, and utilizes recruitment agencies. Also, the salaries or fees of internal or external recruiters who pinpoint and approach suitable candidates also contribute to these costs.
Administrative expenses related to the recruitment process, such as performing background checks, processing applications, and scheduling interviews, are also essential components.
Interviewing costs can further increase if it involves travel and accommodation for candidates or hiring managers, particularly for roles that necessitate relocation. Moreover, companies often incur expenses for different candidate testing and assessment tools used to evaluate skills and suitability.
Once a candidate is selected, the onboarding and training phase also has significant costs. This contains resources for training programs and the time investment of other employees in training new hires. An often-overlooked facet of recruitment costs is the lost productivity, which, although indirect, impacts the company.
This occurs when existing employees spend time in the recruitment process or filling in for vacant positions. Understanding and managing these costs effectively is crucial for companies to balance the acquisition of talent with economic sustainability.
How to Calculate Recruitment Cost?
To calculate recruitment costs, a company needs to add up all the money it spends to hire new employees. This calculation starts with job advertising costs, which incorporate money spent on posting job vacancies on online job boards, in newspapers, or fees paid to recruitment agencies.
The next part of the calculation is recruiter salaries. This contains both internal recruiters who are employees of the company and external recruiters who are paid fees for their services.
Administrative expenses form another portion of the recruitment cost. These are the costs incurred for background checks on candidates, processing job applications, and the logistics involved in arranging interviews. If the company incurs any expenses for candidate travel or accommodation during the interview process, these should also be added to the total cost.
Further, many companies use tests or assessments to evaluate candidates’ skills. The fees for these tests are also part of the recruitment cost. After hiring, there’s the cost of training new employees, which includes the expenses for training materials and the time spent by other employees in training the new hires.
Finally, there’s an indirect cost associated with recruitment – lost productivity. This is the work that goes undone or is delayed because employees are involved in the recruitment process.
So, the equation goes something like:
Recruitment Cost= Job Advertising Cost + Recruiter Salary + Administrative Costs + Candidate Assessment Fees + Training New Employees
By summing up all these expenses, a company can get a clear picture of its total recruitment cost, which is important for budget planning and identifying potential areas for cost-saving.
Also Read: The Importance of Company Culture: 8 Reasons Why You Need It (and How to Build One)
7 Proven Ways to Reduce Cost Per Hire for a Small Company
As already mentioned, recruitment is an essential factor of business growth, but it can often come with high costs. In a terrain where economic efficiency is as important as attracting top talent, businesses must find a balance.
Attempting to reduce cost per hire while maintaining the quality of hires is a strategic imperative. By implementing certain cost-effective strategies, companies can streamline their hiring process, minimize expenses, and still secure the best candidates. Here are seven proven methods to achieve this:
1. Optimize Your Job Descriptions
Include key qualifications and skills demanded for the job, but be careful not to overburden the list with excessive criteria that could deter good candidates. Highlight what your company offers in return, such as growth opportunities, work culture, and benefits. Because this can attract candidates who are a good fit for your organization’s ethos.
Another aspect to consider is search engine optimization (SEO). Use relevant keywords that potential candidates are likely to search for. This improves the visibility of your job postings on search engines and job boards, boosting the likelihood of obtaining applications from qualified candidates.
Finally, ensure that the application procedure is straightforward. A complex or lengthy application process can deter applicants. The goal is to make it as easy as possible for qualified candidates to apply, thereby increasing your pool of applicants while saving time and resources in the recruitment process.
2. Leverage Employee Referrals
Employee referral programs are an effective way to reduce cost per hire. Employees who are already part of your organization understand its culture and requirements. They can recommend candidates who are not only qualified but also likely to be a good fit.
To leverage employee referrals effectively, create a structured referral program. Offer incentives to employees for successful hires. These incentives don’t always have to be financial, they can also be in the form of extra vacation days, public recognition, or gifts.
Make sure to convey the details of the program clearly to all employees, highlighting the types of candidates you are looking for and the procedure for submitting referrals.
Moreover, it’s crucial to keep the referring employees engaged and informed throughout the recruitment process. Providing feedback about their referrals can motivate continued participation in the program.
Remember, a well-managed referral program not only reduces cost per hire but also tends to lead to longer employee tenure, further reducing long-term recruitment costs.
3. Utilize Social Media and Online Platforms
Social media and online platforms are cost-effective tools for reaching a wide audience. Platforms like LinkedIn, Twitter, and even Facebook can be used to post job openings and search for potential candidates.
These platforms are also entitled to passive recruitment strategies, such as building connections and networks that can be tapped into when needed.
When using social media for recruitment, it’s crucial to tailor your message to the platform and its audience. For example, LinkedIn is professional in tone and suitable for detailed job descriptions, while Twitter is better for short, engaging announcements about openings.
Engaging with potential candidates on these platforms can also help. Responding to comments, participating in relevant groups or forums, and sharing content about your company culture and values can attract potential candidates and build a talent pool.
This proactive approach to recruitment can significantly reduce the cost and time involved in hiring.
4. Improving Hiring Processes
Streamlining and improving hiring processes is crucial to reduce cost per hire. A lengthy or inefficient hiring process can lead to higher costs and a loss of good candidates. Start by evaluating your current hiring process and identifying areas where there are delays or inefficiencies.
Consider enforcing structured interviews, which are more predictable and allow for better comparison between candidates. Standardizing interview questions can also reduce biases and lead to better hiring decisions.
Additionally, involving the right stakeholders at the right time is crucial. Too many opinions can complicate the process, whereas too few can lead to poor hiring decisions.
Feedback loops are also essential. Regularly asking for feedback from candidates and hiring managers can provide insights into how the process can be improved. Continuous improvement in the hiring process not only reduces costs but also enhances the candidate experience, which is crucial for attracting top talent.
5. Implement an Applicant Tracking System (ATS)
An Applicant Tracking System (ATS) can significantly streamline the recruitment process, leading to reduce cost per hire. An ATS automates many facets of the recruitment process, from posting job openings to sorting through applications and managing candidate communications.
With an ATS, you can easily keep track of numerous applications, guaranteeing that no potential candidate slips through the cracks. It also helps in filtering applications based on predefined criteria. It saves time that would otherwise be spent reviewing unsuitable candidates.
Furthermore, an ATS can provide valuable data and analytics on your recruitment process. This data can be utilized to assess the efficacy of various recruitment strategies and make informed decisions about where to allocate resources in the future.
The efficiency and insights provided by an ATS can lead to significant cost savings over time.
Also Read: What is An Applicant Tracking System- A Comprehensive Guide for Beginners
6. Increasing Direct Hires
Increasing the proportion of direct hires, as opposed to using recruitment agencies, can result in substantial cost savings. While recruitment agencies can provide valuable services, they also come with substantial fees. Building an internal recruitment team and developing strong recruitment processes can reduce the need for external agencies.
To increase direct hires, invest in training your HR team in advanced recruitment strategies. Encourage them to build networks and talent pools that can be tapped into for future openings.
Also, focus on building strong relationships with educational institutions, professional associations, and industry groups. This can help in directly sourcing candidates, reducing the reliance on external agencies.
However, it’s important to strike the right balance. For specialized roles or high-level positions, recruitment agencies with specific expertise might still be the best option. The key is to use them judiciously and only when necessary.
7. Build Your Employer Brand
A strong employer brand is instrumental in attracting top talent and reducing recruitment costs. When your organization is perceived as a great place to work, it attracts candidates organically, reducing the need for expensive recruitment campaigns.
To build your employer brand, focus on showcasing your company culture, values, and what makes it unique as a workplace. Utilize your company website, social media, and employee testimonials to convey this.
Engaging in employer branding activities such as hosting open days, participating in industry events, and encouraging employees to share their experiences can also be effective.
Remember, a strong employer brand not only attracts candidates but also increases employee retention, further reducing recruitment costs in the long run.
By implementing these seven strategies, organizations can significantly reduce cost per hire while still attracting and hiring top talent. Each strategy requires careful planning and execution but can lead to substantial long-term savings and efficiency improvements.
Also Read: Applicant Tracking System Best Practices: 12 Tips for Small Businesses
FAQs on How to Reduce Cost Per Hire
1. How can small businesses minimize their recruitment expenses?
Small businesses can minimize recruitment expenses by focusing on cost-effective and creative strategies. This includes leveraging their networks and community for referrals, using social media platforms for free job postings, and focusing on building a strong employer brand to attract candidates organically.
Additionally, internal promotions or transfers can be more economical compared to external hiring.
2. Can utilizing social media significantly reduce recruitment costs?
Yes, social media platforms offer a cost-effective way to reach a wide audience. By leveraging networks on platforms like LinkedIn, Twitter, and Facebook, companies can post job openings at a fraction of the cost of traditional recruitment methods.
These platforms also enable companies to showcase their culture and values, attracting like-minded candidates.
3. What is the role of technology in cutting down recruitment expenses?
Technology, particularly Applicant Tracking Systems (ATS), plays a crucial role in reducing recruitment expenses. It streamlines the hiring process, from sorting resumes to scheduling interviews, which saves significant time and labor costs.
Additionally, technology can assist in maintaining a talent pool for future openings, further reducing the need for continuous recruitment efforts.
4. How does refining job descriptions help in reducing hiring costs?
Refining job descriptions helps target the recruitment process more effectively, attracting candidates who are a better fit for the role.
This reduces the time and resources spent on screening unsuitable candidates and increases the likelihood of a successful hire in a shorter timeframe, thus cutting down on extended recruitment costs.
How to Reduce Recruitment Cost – Ending Note
To sum up, smart recruitment isn’t just about spending less; it’s about spending wisely. By following the strategies outlined in this guide, you can reduce cost per hire and still find great talent for your business.
Remember, each step you take towards efficient hiring not only saves money but also builds a stronger, more capable team.
So, take these tips, apply them to your recruitment process, and watch as you attract quality candidates while keeping your budget in check. In the end, it’s all about making smart choices that benefit your company in the long run. Happy hiring!
