Cost of Recruitment

A Guide to the Cost of Recruitment

One of the first questions clients ask when discussing a potential piece of recruitment is ‘what are your fees?’ And although fees aren’t the only cost of recruitment, in fact far from it, in this article I will do my best to explain some of the general elements that contribute to the overall cost of recruitment, how this is used by an agency to determine a fee-rate, and then how this is used to calculate the final recruitment fee.  

Do recruitment agencies provide a good service?

Recruitment is a service industry, therefore unlike physical products whose price are determined by more tangible elements such as materials, manufacturing costs, transportation, packaging etc. the cost of recruitment is largely decided by the time that goes into the process. The challenge this presents for businesses looking to select an agency, is that without a physical product to view, it is difficult to understand where value is being added and what is being received in return for their investment.

Another issue that a recruitment service presents, is that a large proportion of the customers involved (the candidates), don’t have any input into the buying process but are hugely impacted by the quality of service that they receive. This makes it even more challenging because candidates will rarely get to feedback to their counterparts (the hirers), about their experiences, yet it is their experiences that are fundamental to the success a recruitment campaign, not to mention the capability of the hiring organisation to attract talent moving forward.  

Given the high proportion of work that goes on ‘behind the scenes’, it makes it difficult to decipher between agencies that are better at selling their service than they are delivering it, and agencies that can offer a genuine competitive advantage in the talent attraction stakes.

The variations in standards that are being experienced has contributed towards recruiters appearing in a list of the 10 least trusted professions in the UK.

By better understanding the factors that impact the cost of recruitment, and why various agencies in the marketplace charge different prices, it can benefit those who are looking to cut-through the sales patter and make good choices when selecting an agency partner.

How much time goes into recruitment?

The time that goes into recruitment can be broken down into three main areas; the time spent before a campaign starts, the time spent during the campaign itself, and the time spent after a recruitment campaign has concluded. Each can have a profound impact on the success of a business’s recruitment endeavours, however, not all elements get the recognition they deserve.

By identifying the less prominent aspects of a recruitment service, businesses can make better choices when recruiting, and have more control over agencies to ensure they’re getting a comparable level of service for their investment.

Do I need a recruitment specialist?

The time spent by a recruiter before they even speak to a potential client possibly offers the most benefit of all in a recruitment campaign, but, as previously mentioned, is one of the most difficult elements for hirers to recognise the value in it.

This element consists of the time that a recruitment agency spends building their brand in the market and networking with talent. This enables them to gain traction with the best candidates and get airtime for their client’s opportunities when they’re looking to hire.

A significant proportion of time can also be spent training consultants, but in an industry that has a employee turnover rate of an estimated 43% , this is often where recruiters take shortcuts.

Some of the training includes:

  • learning the intricacies of the industry and roles they operate in.
  • learning how to gather the correct detail from clients that the talent they want to attract are interested in.
  • learning how to write exciting and informative adverts that attract diverse applications.
  • learning how to proficiently pitch roles to candidates to bring them to life.
  • learning how to rigorously interview candidates against a job brief and assess softer skills like coachability and recognising high performance traits.
  • learning how to present candidate profiles to enable clients to make informed decisions.

*The better the quality of consultants in an agency, the more optimal the output of a recruitment campaign is likely to be.

However, it’s not always necessary to be particularly proficient in all of the areas outlined above, as it depends on the roles and positions that are being recruited for.

For example, recruiting unskilled, low-level jobs may not require a lot of time or skill to attract large numbers of applicants. They also carry low risk in the event that a placement doesn’t work out due to minimal training requirements, there is a low business impact from the hire, and it’s relatively easy to find a replacement.  Often this type of recruitment fits into the category of high volume and low cost (the fee for each individual placement).

However, a director level appointment usually needs a high-level and targeted approach to attract the right level of talent because it requires substantial levels of information and insight to garner the interest of suitable candidates if you want them to commit their time to explore a role further. These candidates are often time-poor, so won’t just accept unsolicited calls from anyone regardless of the role being pitched, and because the talent pools of this calibre are limited and rarely active in the job market, it’s important for recruiters to have existing relationships with them. As these appointments are often pivotal to the success of a business and accompanied by substantial onwards investment, getting these hires wrong can be extremely damaging and costly to a business.

As a general rule of thumb, the more niche and targeted that a recruitment campaign needs to be, the higher the fee will likely be due to the time investment required to attract this level of individual.

What do recruitment agencies do to attract talent?  

The time spent delivering a recruitment campaign is the most prominent element of investment that a hiring organisation makes so often gets the-lion’s-share of a recruiter’s attention. Unfortunately, this can be taken advantage of by agencies looking to artificially inflate their price or overstate their service levels. Further to this, it is the client-side service of the campaign that will get most of the focus because, as already discussed, candidates are often an afterthought in the service stakes as they’re not the ones who pay for it.

In what has been a candidate-focused job market for some time now (and stands to be for years to come), this can be a fatal mistake for businesses!

Think of recruitment like an iceberg where the client experience throughout a campaign is often the only bit that ever comes into view. If you forget about the other elements that are out of sight (but can have a profound impact on the likelihood of success), your hiring plans can quickly end up sinking… no matter how much you’ve been made to feel valued as a client.

The first evidence of a difference between cost-focused and more time intensive approaches, is seen when a job is first taken on. Higher-cost agencies will spend time gaining insight about the hiring organisation and their opportunity, as the best and most in-demand candidates will need this detail if they’re to explore it over the dozens of others they’re regularly presented with. This also enables the agency to shortlist only the most suitable candidates, not just from a skills and experience standpoint, but also an attitudinal and behavioural point of view.

Lower cost agencies won’t want this information as takes time to gather and collate it before a campaign can start, and furthermore, to communicate it to potential candidates throughout the duration of this stage.

Moving on to the search & selection phase, lower-cost agencies will demonstrate a lot of activity in the early stages, however, less haste, more speed is required for delivering the best results. The approach to search work usually falls into two categories: fast & furious or slow & structured. Both approaches have implications for the time an agency must put in and similarly the results a client can expect to achieve.

A fast & furious approach delivers a lot of activity in the first few days, giving a client the impression they’re getting a lot of bang-for-their-buck, but often little is done after this point because low-cost, time-focused recruiters, rely on turning jobs round quickly and moving onto the next one to generate their revenues

*these agencies require high volume and quick job turnaround but have low placement success rates.

To achieve the perception of high output, these agencies often adopt a mass market approach which focuses on active talent pool (candidates who are seeking new opportunities), as this facilitates higher levels of applicants in a shorter space of time. Statistically, though, the active talent pool is not typically as high quality as the passive talent pool (candidates who would be open to an opportunity if the right one came a long), as the latter are more secure and settled in their roles… usually this is for a reason!

Time focused approaches also often result in candidates being introduced as and when they are contacted which isn’t always conducive to a good candidate selection strategy as it’s makes it difficult to benchmark candidates which can make it almost impossible for effectively mitigating bias during a recruitment campaign.

If businesses can find their solution using this method, it has the potential for delivering quick and cheap wins, not just for the recruiter, but also for the hiring organisation. However, as mentioned previously, the costs of recruitment shouldn’t just be measured on the fee that is paid for a successful placement, so businesses need to be mindful of how this approach can affect their employer brand as well as hindering their short-term results.

When, and if, shortlists are compiled and the search work is complete, there are also time implications of the process management. Well managed processes with high levels of communication are by their very nature time-intensive, whereas agencies who can limit their involvement as middle-men, reduce their overheads. The issue with this is that the candidate experience can have a huge impact on the outcome of a recruitment campaign.

Last but not least, the amount of time invested into managing a process and correlating the detail, can make all the difference throughout offer-management, as it is the small things that can sway finely balanced negotiations. Failure to invest in the preparation work can result in the whole process being a waste of time and having to go back to the drawing board.  

Why do recruitment agencies ghost candidates? 

Time spent by agencies after a recruitment campaign has ended is another aspect of cost that hiring organisations need to consider. It’s all very well assuming that once you’ve secured your candidate that the job of a recruiter has ended, or at least that their actions won’t not impact you, but that is not the case.

With instances of recruiter ghosting at record levels, it is naïve to think that if the recruitment agency representing you fails to feedback to candidates who have invested their time exploring a job opportunity with you, that this won’t have a detrimental impact on your employer brand.

In fact, what research has suggested is that it will more than impede your future recruitment efforts but can also impact sales!

The issue with seeking and delivering feedback to candidates (or even simply communicating that they have been unsuccessful!) after they have exited a process, is that it is a timely (and subsequently costly) exercise that offers no immediate benefit to the recruiter. This offers a perfect element of a process for them to drop because, as previously discussed, it occurs out of site of the client and its impact is difficult to attribute to them.

Further to this, keeping close to candidates after an offer has been accepted and throughout the onboarding process can support business in ensuring a hire succeeds, but due to the high turnaround rates and lower success rates of time-focused recruiters, they’re less likely to build long term relationships with their clients so subsequently don’t experience the benefits that this further time commitment can deliver.

In a nutshell, to leave a positive impression on all the applicants involved in your recruitment campaigns, and to support a seamless transition through recruitment and onboarding, it takes times (and subsequent investment), for this to be delivered.

How do I work out a recruitment fee?

So there are all the elements of a process that contribute to the time that goes into recruitment, and the subsequent fee that an agency will charge.

Hopefully you have enough insight to question an agency you’re considering working with to understand if you’re going to be getting value for money, or alternatively, maybe this will help you appreciate the compromises you’re going to have to make if you want to make savings on the initial fee.

As discussed, the fees can vary from single digit commission rates for high-volume low-skilled labour, up to 30-40% for specialist high end roles. And in between these extremes there are a vast array of different service levels and price combinations for the 746,456 recruitment agencies in the UK trying to calve out their niche.

My advice is to be wary though. Be wary of recruiters who promise low fees with no compromise, because if it sounds too good to be true… it invariably is. And be wary of recruiters charging higher fees who can’t substantiate what you get for the additional spend.

But how do you calculate the actual fee? Well, it’s as simple as multiplying the annualised salary rate (check if this includes any of the wider package), by the agreed commission rate, and that’s your fee.

E.g £40,000 salary x 20% rate = £8,000 recruitment fee.

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