Manage Your Recruitment Costs Better: Penny-Wise and Pound-Foolish?

Our macro‐level analysis reveals that 80 % of large enterprises have active HR cost-reduction programs, with procurement now presiding over recruitment spend. While these initiatives deliver measurable fee compression, they often elongate time-to-hire and constrict talent pipelines.

So, how to manage recruitment costs better?

Crucially, the greatest financial exposure does not sit in recruitment agency commissions but in the opportunity cost of a vacant or mis-hired role—an impact that escalates sharply with seniority. Sustainable savings, therefore, require a holistic lens on total talent-acquisition cost, balancing vendor efficiency with speed and quality of hire.

Because we know that not all of our readers have the time to spend more than a few minutes on an article, we’ll be brief:

The greatest expense isn’t the search fee - it’s the opportunity cost of an unfilled or poorly filled role, a cost that climbs steeply with each rung of the hierarchy.

We’ll return to this shortly.

This being said, there are, of course, several areas where straight cost savings are possible. We are going to:

• analyze the sources of the costs in recruitment,

• help you define what you can do about them,

• offer some solutions and benchmarking (hint: this will be strongly dependent on your own, sector-specific research).

Our intended audiences are procurement staff (at all levels) and HR employees, but also TA managers and business owners who do not have procurement departments. The analysis and recruitment solutions we offer are transposable to a company of any size.

Managing Recruitment Costs: Where Did My Money Go?

When we raise the talent acquisition theme, we can safely state that the objective of procurement and HR departments is to transform fixed costs into variable ones and so reduce overall recruitment spend while allowing for an increased quality of candidates and reducing the time to hire.

There are three main sources of costs at play during the recruitment process:

1. The spending on recruitment.

2. The cost structure of the talent acquisition activities of the Human Resources department.

3. The cost of attrition - also called employee turnover- the length of stay of a productive employee. Implied in this statement: the speed at which a new employee becomes productive.

When we raise the talent acquisition theme, we can safely state that the objective of most procurement and HR departments is to transform fixed costs into variable ones and so reduce overall recruitment spend while allowing for an increased quality of candidates and reducing the time to hire.

Should you ignore the overall cost of your HR department recruitment activities, it will be difficult to argue that you achieved any significant savings. So, before we dive into this, we should look at how to evaluate the cost of your talent acquisition activities. And the simpler the method, the more often it will be applied, and the more significant its results.

How to Evaluate Your Recruitment Costs?

Recruitment KPIs are of the utmost importance here, and they constitute the dashboard which helps you track the evolution of your costs almost “live”.

The most important recruitment data indicator is the cost per hire (CPH): it is calculated by

dividing the sum of costs, (made of your internal recruiting costs plus your external recruiting costs),

by the total number of hires, over a determined time period (generally one calendar year), or:

External recruitment costs vary according to the number of hires, whereas internal costs vary little; hence, they represent the highest obstacle during a recruitment budget reduction program.

Internal costs are spread over the number of hires you make. Therefore, the more hires you make per year, the less the fixed costs per hire.

When you are in a situation needing an increase in your fixed costs structure, say hiring a new recruiter because there is a sudden high volume recruiting need, it is sensible to evaluate the opportunity of onboarding an RPO firm, to keep your fixed costs at the same level whilst benefitting from immediately available, highly experienced recruitment support.

Benchmarking your cost per hire, internally and externally, is obviously important. It helps pinpoint improvement areas in your recruitment budget, but also everything you accomplish.

At the same time, one needs to be cautious with the interpretation of the numbers: the sector of activity, the market conditions, the industry, the geographical location, the expertise, etc., influence the ease or the difficulty of attracting adequate talent.

Make sure you compare apples with apples.

1. Spending

The easiest target for cost reduction is your external recruitment spending. It is mostly made of invoiced external services and, therefore, easy to track. A non-exhaustive inventory that can serve as a checklist:

• External expenses for executive search or agencies

• Fees for Job boards

• Recruitment marketing and increasing candidate awareness (presence on social media channels, advertising costs, recruitment fairs, etc)

• Candidates’ or recruiters’ travel expenses (transportation, lodging, food)

• Candidate CV screening and assessment costs (if done by external partners)

• Background check services

• Pre-employment tests (psychological and or aptitude)

• Employee relocation (if applicable)

As a benchmark, the share of the most expensive recruitment channel – recruitment agencies and headhunters – should not go over the 10% threshold of all your external positions in any given time period.

If it is, then you know that this is an area where you can deliver your first wave of savings smartly and quickly.

In a Recruitment Process Outsourcing (RPO) solution, your RPO provider takes ownership of this topic and suggests the reduction of external fees as a KPI. As a concrete illustration, we at Serendi realize annual savings of between 35% and 70% for our clients on the external recruitment costs.

And how is this possible?

Firstly, because we know how to get the biggest bang for the buck, we know where your money has the most efficacy. We keep an attentive eye on the return on investment of every outside expenditure. Through our active candidate sourcing, we can, for example, reduce your spending for recruitment agencies and headhunters significantly.

Secondly, we negotiate and are familiar with the cost structure of our suppliers, allowing us to reduce where and when there is a margin for reduction.

Thirdly, the sizable number of hires we make every year gives us buying power, second to none.

2. Internal Cost Structure

Let there be no misunderstanding: the highest share of any recruiting department’s budget is the internal recruiters. And they are also the most fixed costs you possess.

Cost reduction programs driven by finances normally target the reduction of these recruitment overhead costs. While investments into technology, digitalization, and recruitment automation are valued by shareholders, fixed overhead costs, like those in HR, are under close scrutiny.

Instead of building an internal headcount for your talent acquisition function, you can transform these fixed costs into variable costs. With a Recruitment Process Outsourcing (RPO) solution, you will pay only according to the number of open positions and only when the goal of your recruitment function has been achieved – the successful closing of an open position. That is what we, at Serendi, call transactional and performance-based pricing.

And if your business leaders and accounting department agree, you can also get the recruitment cost invoiced directly to the hiring departments by applying the root cause principle. A huge block is lifted away from the general HR budget.

RPO allows for flexible pricing, meaning a flexible cost structure with direct impact in times of crisis and hiring freezes.

Internal recruiting costs are comprised of, among others:

• Candidate portal or careers page costs

• Recruitment software (Applicant Tracking System)

• Social media subscriptions and management

• Checking references

• Pre-employment tests

• Candidate assessment costs (if done in-house)

• Sign-on bonuses

• Employee referral bonuses

• Onboarding process

Let us now turn to the least transparent, whilst the most significant cost of all:

3. Selecting the Right or Wrong Candidates

Attrition is driven by selection: the right candidates reduce it, the wrong ones inflate it.

We have all heard the joke of the man looking for his keys in the middle of the night, right under a lamppost.

His friend: ”Are you sure you lost your keys here?”

The man: ”I have no idea, but this is the only place with lighting”.

What this means is that external recruitment costs are the most discussed and debated because they are also the easiest to track. The internal recruitment costs are (somewhat) easy totally.

Unfortunately, what is less transparent is the psychological burden that comes with letting go of people, not only on them but, primarily, on the survivors. And of course, there is a direct cost linked to lack of productivity, severance pay, etc.

Find out more about the Psychology of Hiring.

Managing Recruitment Costs: The Cost Of a Bad Hire

By far, the most significant costs related to recruitment are hidden costs or costs that are less obvious. Among these, let’s mention the opportunity cost of not filling a position: imagine a project for a client has to be postponed, or its signing is dependent on hiring a key person? You can safely attribute the lost or postponed sale to the lack of talent on hand. In harsher words, the failure of the recruitment team.

Other factors play essential roles, and they are difficult to estimate. For example, the time it takes for a new employee to become productive is essential in the cost-benefit analysis of that hire. Also, the length of employment of that same hire is highly influential on her return on investment.

Needless to mention that other themes in talent management – onboarding process, training, and employee retention rate - are pure Human Resources and line managers’ responsibilities and must be monitored carefully. Their importance for the success of recruitment and the evolution of a new hire in the company cannot be stressed enough. They are subjects, though, outside of the scope of this paper.

The reason that employee turnover costs are rarely considered is simple: the expenses are passive and are therefore easily overlooked.

Where recruitment comes into play is in the selection of the right candidate in the first place, a qualitative issue if you want. And all procurement managers know how difficult it is to quantify…quality!

Now to attrition itself: a quick situational analysis first. Various sources give different numbers, but all point to the high cost of attrition:

• Gallup calculates turnover costs at roughly 200 % of annual salary for leaders and managers, about 80 % for technical professionals, and around 40 % for frontline staff. (1)

• Hiring a new employee can cost up to 30% of their yearly salary.

• Another research has shown that the cost of replacing a leaving employee can be estimated at ca. 50% of the annual compensation cost for this position.

• Upskilling is four times cheaper than hiring. Recent IT-industry surveys show that 99 % of organizations report positive results from upskilling (most notably stronger retention and higher productivity) achieved at less than 25 % of the cost of traditional recruitment.

• New hires are often paid better than current employees. For instance, in the US, new hires had a 7.2% annual pay increase in 2024, while job stayers got only 4,8%. (2)

The reasons for leaving include interpersonal issues, workload problems, or a lack of recognition. Again, they are all issues that HR and line managers should handle. But you can only address these issues if the employee is willing and motivated. If the hire is wrong in the first place, there is not much to work on.

Obviously, if you know an employee will stay for many, many years and/or be productive quickly without much training, you may be willing to swallow those costs and consider them as part of the recruitment budget or general cost of doing business.

Unfortunately, most employers complain that the attrition rate is much too high: new hires sometimes leave before they have contributed a single penny to the bottom line. And that is not an issue of motivation or retention; it is an issue of recruitment.

We all accept that there may be a bad hire once in a while, or unforeseen circumstances that cut short the stay of a new employee in a company. But those should be the exception, whereas with many organizations, they are the hidden, unwilling rule.

If you can reduce the attrition rate within your company by providing the best available talent and performing a high-quality selection process in the recruitment process, you can easily calculate the savings through the increase in retention. This is another domain where an RPO organization can work hand in hand with your procurement team.

Manage Recruitment Costs Better: Final Words

The contribution of RPO and its wide talent pool is invaluable. Because Serendi manages thousands of candidates each year across the full candidate process, it couples data-driven recruitment analytics with careful employer-brand stewardship, converting its hard-earned expertise into concrete benefits for client companies.

It also benefits the hired and rejected candidates: for the former because their time at the company that engaged them will be productive and satisfying, for the latter because it is always better not to get the job rather than getting the wrong one.

Finally, what is often overlooked is the burden the attrition puts on other employees, mostly the best performers. The extra work lands on their lap and does not contribute to their overall motivation.

Better talent, higher quality, lower cost – agile.

Book here your first consultation free of cost. We could together benchmark your recruitment cost, identify the areas of savings, and help you manage recruitment costs better. Our talent advisory consultants are happy to provide you with a first business case. You can also contact us via our B2B form.

Sources:

Gallup

ADP Research

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About the Author

Fiona-Sophie Grube is the Chief Development Officer at Serendi

Fiona oversees all organizational development at Serendi. She builds on more than 15 years of experience in talent acquisition and recruitment with more than 25 international clients to set the framework for Serendi’s RPO delivery strategy and operations.