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In 2015, labor costs made up nearly 60% of all company expenses. This situation is only getting worse because of low unemployment rates that drive up competition for the best candidates. Given labor costs, it is important for a company to take the most efficient steps possible to protect their budget when it comes to sourcing and onboarding the best and most qualified candidates.
Below, you'll find a beginner's guide to setting up a recruitment budget. You will learn the fundamentals of getting this essential part of your business right.
1. Figure out the entire amount you spend on new hires
To get a full picture of how much you need to set aside for your recruitment budget, communicate with all your managers throughout your business and learn about the different roles they will need to fill for the next year.
Start by generating a template and circulating it to your managers, so they can provide the types of roles needed and the justification for each one. They should include how much the roles would cost in salary and the overall benefit package, for example health care. These managers will also need to provide information about the skill levels required so you can determine whether it is necessary to hire full-time employees or whether it would be better (and more cost effective) to use contingent workers and outsource the work.
Managers need to provide information about the job level and whether the role would need to be done by a senior manager, intern, hourly worker, or a different employee classification. Additionally, you need to work with HR to discover your turnover rate. The past rate needs to be taken into consideration to forecast how many staff will be leaving the company within the next year.
If you are a new business and do not have the information on turnover rates, you can look at the industry average for a business just like yours, then use it as a basis to work out your own turnover rate. This will enable you to create a contingency budget to account for people who will leave your company and how much will be needed to replace them.
As an example of working out your turnover rate, if your business has 200 people and you want to hire 50 more, with no turnover your total employee count will be 250 at year end. However, if you believe you will have a 10% turnover rate, you would have to hire 20 more people before the year's over. Therefore, you need to include in your recruitment budget the amount needed to hire 20 more staff.
2. Work out your essential recruitment costs
These are the basic costs involved in the recruitment process, taking into account the tools and technology you will need to streamline the process to make hiring more efficient. Your essential recruitment costs may include the salaries of the teams that source the best candidates.
The following can also be classified as essential recruitment costs:
3. Calculate your fixed cost
The fixed cost for your recruitment budget should include external agency fees. If you are deciding whether to use a recruitment agency, their commissions are part of your recruiting budget. Most agencies charge up to 30% of a candidate’s annual salary. However, for some specialist roles, the cost could be more expensive.
The following are additional fixed costs that you should consider when setting a recruitment budget:
4. Find out about the cost of recruiting technology
Using the right recruiting technology will not only save time, but it will also save money in terms of sourcing, hiring and onboarding the best candidates. When estimating how much recruiting technology will cost, review modern hiring solutions, like Fountain.
Other technology costs in terms of recruitment can include applicant tracking systems; however, if you have a modern hiring solution, there is no need for a separate applicant tracking system. You will also need to factor in cost for solutions like background checking services. Note that your modern hiring solution should be capable of integrating with all other services required for a full recruitment process.
Fountain provides you with a complete and full life cycle recruitment solution as it integrates with the necessary tools for hiring the best candidates. For example, Fountain integrates with background checking services, like Checkr and electronic signature software, like HelloSign.
5. Think about how much it will cost to improve the hiring process
Your goal should be to reduce the time and cost it takes to hire from your existing recruitment process. Add a prescreening program to reduce the cost of face-to-face interviews. You should consider using a prerecorded video interview to ask candidates to talk about themselves and why they have applied for the position.
With Fountain, video interviewing comes as standard. This feature provides you with additional information, therefore, you will have a better idea of how a person presents himself or herself before the actual interview.
Prescreening video interviews with written applications will help you make a better decision before booking facilities for face-to-face interviews. Using pre-recorded interviews will have a positive effect on your bottom line. Carrying out face-to-face interviews can be a drain on your resources, in terms of securing the right facilities as well as taking employees away from their core business. Pre-screening candidates will lessen the chance that you will waste money, effort and time on interviewing unsuitable candidates face-to-face.
You can also implement an employee referral program into your recruitment process. Think about different ways that you can incentivize current employees to spread the word about vacancies in your company to qualified people they know.
6. Work out your miscellaneous hiring costs
Review your recruitment process to figure out various expenses that arise while sourcing and recruiting candidates. When you have identified them, add it to your recruiting budget. If these expenses have been incurred in the past, it is likely you will have to pay them again.
7. Work out the cost per hire
This is one of the most important steps when setting up a recruiting budget. Even though this is a beginner's guide, this part of the process should never be left out; without it, your budget will not be useful. If you have recruited previously, you can have a look at past budgets and work out the cost per hire for the coming year.
Remember that the cost per hire will be different for each role. Some jobs are hard to fill. Therefore, you will likely spend more, for example, on specialist agencies to ensure you get the right person.
The formula for cost per hire is:
Cost per hire = internal cost plus external cost / by total number of hires.
Internal costs are made up of what you spend on recruiting within your company -for example, paying an in-house recruiter or establishing a referral program.
Whereas, external costs are what you spend outside your company: for instance, paying recruitment agencies and posting to paid job advertising platforms.
Your cost per hire tells you about the current state of recruitment in your company. It depends on the size of your business and how often you recruit. It also depends on the type of workers needed. For example, if you have to recruit several senior managers in one year, this will drive up your cost per hire.
However, if you have to recruit many hourly or contingent workers, your cost per hire will not be as high as anticipated, if you use the right software. For example, Fountain's Boost helps to source as many hourly and contingent workers at scale.
You simply let us know how many workers you want, and we agree on a budget. We post to the most relevant platforms (which is made up of both free and paid platforms) for your business and provide you with a simple and streamlined dashboard so you can manage your applicants.
This beginner's guide to setting a recruitment budget should help you plan for your recruiting needs and know how much it will cost for the coming year. It is recommended that you dedicate as much time as possible to creating this budget, as well as using the right tools to maximize the recruitment process, while reducing the cost to hire as well as the time to hire.
Sign up for a free trial of Fountain today to see how you can incorporate our modern hiring software into your recruiting budget. You will also find out first-hand how your business will benefit from a streamlined recruitment process to source, recruit and onboard the best candidates, fast.