Recruitment costs for small business
Quick insights
- Recruitment costs typically include both internal and external expenses your business incurs to find and hire new employees.
- Common line items range from job advertising and background checks to recruiter fees and the time your team spends interviewing.
- Tracking your cost per hire may help you identify ways to reduce recruiting expenses and plan your hiring budget more effectively.
Bringing on a new team member can be an exciting step for any small business owner, but the price of finding the right person may add up faster than you expect. Recruitment costs can go beyond just posting a job listing to include every expense tied to attracting, screening and onboarding a candidate. The good news is that once you know what drives these costs, you may be able to keep them in check.
What are recruitment costs?
Recruitment costs are the total expenses a business incurs to attract, evaluate and hire new employees. These costs may include both internal and external spending, and they can vary widely depending on the role, industry and hiring approach.
For a small business owner adding a second employee, recruitment costs might be modest, perhaps limited to a job posting and a few hours of interviews. For a growing company filling several specialized roles, the costs of recruiting can rise quickly as you invest in advertising, screening tools and possibly outside recruiter fees.
Knowing what counts as a recruitment cost can be the first step toward managing your hiring budget.
What are average recruitment costs?
Recruitment costs can vary significantly based on factors like industry, role seniority, location and market conditions. Because so many variables are at play, there is no single figure that applies to every business.
That said, recruiting expenses often represent a meaningful investment. Some industry estimates place the average cost of recruiting a new employee in the thousands of dollars per hire, though the actual amount may be higher or lower depending on your circumstances. For specialized or challenging-to-fill roles, costs may run several times higher than for entry-level positions.
External recruiter fees, when used, are often calculated as a percentage of the new hire's first-year salary. The exact percentage may vary based on the role's complexity, the industry and the recruiter's terms. Fees are typically owed only if the recruiter successfully fills the position.
Rather than focusing on a specific dollar amount, it may be more helpful to understand the factors that influence your recruiting fees and how they fit into your overall budget. This broader view may help you plan for hiring costs without being caught off guard.
What are common line items for employee recruitment?
Recruitment costs are made up of many individual expenses, often grouped into internal and external categories. Internal costs can include the time your existing staff spend on hiring activities, while external costs usually cover outside services and tools.
Here are some common line items that may contribute to your recruitment costs:
- Job advertising and postings: Fees for listing open positions on job boards, social media or industry-specific websites may vary by platform and visibility.
- Background checks and screening: Costs for criminal background checks, reference verification and drug testing may depend on the depth of the screening.
- Recruiter or agency fees: If you work with an external recruiter, fees are often a percentage of the new hire's first-year compensation.
- Interview time: The hours your managers and team members spend reviewing resumes and conducting interviews represent an internal cost that adds up.
- Assessment tools: Pre-employment skills tests or personality assessments may carry per-candidate fees.
- Onboarding setup: Equipment, software licenses and training materials for new hires may be part of the overall cost of onboarding an employee.
Some of these expenses happen before a candidate starts, while others occur during the first weeks of employment. Tracking these line items through expense tracking may help you track what each hire costs your business.
Ways to calculate cost per hire
Cost per hire is a metric that helps you understand how much you spend on average to fill each open position. It is calculated by adding your total internal and external recruitment costs for a given period, then dividing by the number of hires made during that same period.
The formula looks like this: internal costs plus external costs, divided by the total number of hires. Internal costs may include staff time for interviews and onboarding, while external costs may cover job ads, agency fees and background checks.
For example, if your total recruitment costs for a quarter add up to a certain amount and you hired three people, dividing the total by three gives you your average cost per hire. This number may be higher for small businesses that hire less frequently, since fixed costs like job board subscriptions are spread across fewer hires.
Calculating cost per hire regularly may help you spot trends, compare costs across departments and identify areas where you might reduce expenses. Over time, this metric may also help you benchmark your recruiting efficiency and plan future hiring budgets.
Ways to reduce recruitment costs
There are several strategies that may help small businesses lower their recruitment costs without sacrificing hire quality. The right approach can depend on your hiring volume, the roles you are looking to fill and your available resources.
- Using employee referrals: Encouraging current employees to refer candidates may reduce advertising spend and often leads to faster hires.
- Writing clear job descriptions: A well-crafted posting may attract more qualified applicants, which could reduce the time spent sorting through unqualified resumes.
- Streamlining your interview process: Structured interviews with clear criteria may help your team make decisions more efficiently, reducing the internal time cost per candidate.
- Building your employer brand: A positive reputation as a workplace may help attract candidates organically, potentially lowering your reliance on paid job postings over time.
- Leveraging technology: Applicant tracking systems and other recruiting tools may help automate repetitive tasks, freeing up your team's time for higher-value activities.
- Planning ahead: Estimating your annual hiring needs and building a buffer into your budget may help you avoid rushed, last-minute hiring that tends to cost more.
Investing in a thoughtful onboarding process may also help reduce turnover, which is one way to lower long-term recruitment costs. Good business expense management practices may also help you keep overall hiring costs in check.
In summary
Recruitment costs can be a natural part of growing a small business, but you can usually manage them with the right approach. By learning what goes into these expenses, calculating your cost per hire and exploring ways to streamline your process, you may be able to make more informed hiring decisions. Whether you are bringing on your first employee or expanding an established team, a clear understanding of your recruitment costs may help you budget more effectively and plan for sustainable growth.
