How to Create a Hiring Budget: Complete Guide for Small Businesses (2026)

Creating a hiring budget is one of the most important planning activities for growing businesses. Yet many small companies approach recruitment spending reactively rather than strategically, leading to overspending or missed hiring targets.

The average cost per hire is $4,700 according to SHRM, but this varies dramatically based on role level, industry, and hiring methods. Without a clear budget, you might find yourself either underspending (and missing quality candidates) or overspending (and hurting your bottom line).

This guide walks you through creating a comprehensive hiring budget, understanding what costs to include, and using benchmarks to ensure your spending is competitive. Plus, use our free Hiring Budget Calculator to get instant estimates for your specific situation.

#Why You Need a Hiring Budget

A well-planned hiring budget helps you:

• Predict costs accurately: No surprises when invoices arrive
• Justify spending to leadership: Show ROI on recruitment investment
• Allocate resources wisely: Know where to spend and where to save
• Compare to benchmarks: Ensure you're competitive but not wasteful
• Plan hiring timelines: Understand the financial implications of hiring delays

Without a budget, you're essentially flying blind. And in recruitment, that often means either settling for mediocre candidates (to save money) or blowing through cash on ineffective channels.

#Components of a Hiring Budget

Your hiring budget should include both direct costs (easy to track) and indirect costs (often overlooked but significant).

#Direct Recruitment Costs

1. Job Advertising

• Job board postings (Indeed, LinkedIn, etc.)
• Sponsored job posts
• Social media advertising
• Industry-specific job boards
• Print advertising (if applicable)

2. Recruitment Tools & Software

• Applicant Tracking System (ATS) subscription
• LinkedIn Recruiter license
• Assessment tools
• Background check services
• Video interviewing platforms

3. External Recruiting

• Recruitment agency fees (typically 15-25% of first-year salary)
• Executive search fees (25-35% for senior roles)
• Staffing agency fees for temporary positions

4. Candidate Experience

• Travel reimbursement for interviews
• Candidate meals/hospitality
• Relocation assistance
• Sign-on bonuses

5. Employer Branding

• Career page development
• Employer brand content
• Employee testimonials/videos
• Recruitment marketing materials

#Indirect Recruitment Costs

1. Internal Time

• HR/recruiter time spent on hiring
• Hiring manager interview time
• Team member interview time
• Administrative processing time

2. Productivity Loss

• Position vacancy cost (revenue lost while role unfilled)
• Existing team covering vacant role
• Reduced output during hiring process

3. Onboarding & Training

• New hire orientation
• Training programs
• Manager time for coaching
• Equipment and workspace setup

#How to Calculate Your Hiring Budget

#Step 1: Determine Your Hiring Volume

Start by estimating how many hires you'll make:

• New roles for growth
• Replacement hires (account for turnover)
• Seasonal or project-based hires

Formula: Total Hires = New Roles + (Current Employees × Turnover Rate)

Example: If you have 25 employees with 15% turnover and plan to add 5 new roles:

• Replacement hires: 25 × 0.15 = 3.75 (round to 4)
• Total hires: 5 + 4 = 9 hires for the year

#Step 2: Estimate Cost Per Hire by Role Type

Different roles have different recruitment costs. Use our Employee Cost Calculator to estimate total compensation including salary multipliers:

These costs include advertising, recruiter time, and basic tools. Agency fees are additional.

#Step 3: Add Tool and Software Costs

Typical annual costs for recruitment tools:

• Basic ATS (JuggleHire): $228 - $1,188/year
• LinkedIn Recruiter: $8,999/year
• Premium ATS (Greenhouse): $6,000+/year
• Assessment tools: $1,000 - $5,000/year
• Background checks: $30-100 per hire

#Step 4: Factor in Agency Fees (If Applicable)

If you use recruitment agencies:

• Standard fee: 15-25% of first-year salary
• Executive search: 25-35% of first-year salary

Example: Hiring a $60,000/year role through an agency at 20% fee = $12,000

#Step 5: Calculate Internal Time Costs

Estimate hours spent on each hire:

#Hiring Budget Template

Here's a simple budget template for planning:

#Industry Benchmarks for Hiring Budgets

Compare your budget against industry standards:

#7 Ways to Reduce Your Hiring Budget

#1. Use Affordable ATS Software

Enterprise ATS like Greenhouse costs $6,000+/year. Modern alternatives like JuggleHire provide essential features for $228-$708/year—saving $5,000+ annually.

#2. Build an Employee Referral Program

Referral hires cost 50% less and stay 70% longer. Offer $500-$2,000 referral bonuses to tap your team's network.

#3. Optimize Job Board Spending

Track which boards produce quality hires. Often 80% of good candidates come from 20% of sources. Cut the underperformers.

#4. Reduce Agency Dependency

Use agencies only for hard-to-fill roles. For standard positions, invest in better job descriptions and an ATS instead.

#5. Speed Up Your Process

Vacancy costs add up. If a $60,000 role generates $100,000 revenue annually, every week of vacancy costs ~$1,900 in lost productivity.

#6. Create a Talent Pool

Maintain relationships with past candidates. Re-engaging previous applicants costs nearly nothing compared to new sourcing.

#7. Invest in Employer Brand

Strong employer branding reduces cost per hire by 50%. Candidates apply directly instead of needing expensive outreach.

#Using Our Free Hiring Budget Calculator

Planning your hiring budget doesn't have to involve complex spreadsheets. Our Hiring Budget Calculator helps you:

• Estimate total hiring costs based on your specific hiring plans
• Calculate cost per hire for different role types
• Compare to industry benchmarks to see if you're on track
• Identify areas for savings with personalized recommendations

Simply enter your planned hires, expected salaries, and recruitment methods to get an instant budget estimate.

Try the Hiring Budget Calculator →

#Hiring Budget FAQs

#What percentage of HR budget should go to recruiting?

Typically 15-25% of your total HR budget should be allocated to recruiting. For a small business with a $100,000 HR budget, expect $15,000-$25,000 for recruitment costs annually.

#How much should I budget per hire?

For small businesses, budget $3,000-$5,000 per hire for standard roles. Senior positions may cost $10,000-$15,000. Executive searches can exceed $25,000 per hire.

#Should I include salary in the hiring budget?

No. Hiring budget covers recruitment costs only. Salaries belong in your operational/payroll budget. However, note that higher salaries typically mean higher recruiting costs.

#How do I budget for unexpected hiring needs?

Add 15-20% contingency to your hiring budget for unexpected turnover or new roles. This prevents emergency overspending.

#Is it worth paying for recruitment agencies?

For hard-to-fill specialist or executive roles, agencies can be worth the 20-30% fee. For standard roles, invest that money in better job descriptions, an ATS, and employer branding instead.

#Conclusion

A well-planned hiring budget transforms recruitment from a cost center into a strategic investment. By understanding all the components—from job ads to internal time—you can make informed decisions about where to spend and where to save.

Key takeaways:

• Include both direct and indirect costs in your budget
• Benchmark against industry standards
• Invest in tools that reduce long-term costs (like affordable ATS)
• Track spending to optimize over time

Ready to plan your hiring budget? Use our free Hiring Budget Calculator to get started.

Related Articles:

• How to Reduce Cost Per Hire: 7 Proven Strategies
• True Cost of Hiring an Employee
• Best Applicant Tracking Systems for Small Businesses
• Time to Hire Calculator