My firm manages the hiring process for companies of many different sizes. When we started working for one particular small business, their budget was tight.
This company was spending heavily on job boards, but the applicants they brought in weren’t worthwhile. After reviewing their situation, we advised them to switch gears and focus part of that budget on a more affordable channel: a referral program. Even with a small initial referral bonus, we saw an immediate impact. Not only were the candidates of higher quality, but the retention rate was much better, and our costs per candidate were significantly lower. It’s the perfect example of how even a small amount can go a long way when managed effectively.
Whether you’re shopping for groceries, building a house, or running a company, you need a budget to do it successfully. We’ll explain how to create and manage your recruiting budget in a way that minimizes waste, promotes high-quality hires, and helps achieve the company’s goals.
What Is a Recruiting Budget?
At a high level, this is your plan for allocating resources toward recruiting activities. It includes fixed costs, like salaries for recruiting staff, and variable costs, like advertising, referral bonuses, and recruiting specialized employees.
Your recruiting budget will be based on the number and type of candidates you want to attract. It will also be dictated by the organization’s larger goals, such as growth or cost reduction. A strategically designed budget helps recruitment managers spend money in a way that supports these goals.
Importance of a Recruiting Budget
Your recruiting efforts directly impact the quality of the staff you hire, and the quality of your workforce defines the company’s performance. Without a skilled, dependable staff, achieving the company’s goals will be near impossible.
A carefully constructed recruiting budget ensures funds are spent thoughtfully where they will make the most significant impact, improving results yearly and eliminating waste where possible.
Here’s an example. Let’s say one of your major recruiting pain points is sorting through a large volume of applications. You have $10,000 to solve the problem. How are you going to spend it?
A budget could help you understand that a $50,000 salary for an additional recruiting team member isn’t feasible, but a $7,500 ATS with AI resume screening capabilities might be. Furthermore, a line-by-line analysis of that budget could reveal you’re spending excessively on social media ads that are the source for the overwhelming number of applications and almost nothing on bonuses for referrals, which are notoriously a better source for high-quality applicants. This information can inform your decision-making and help you better optimize spending, so you can allocate more money to the channels that deliver the best results.
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Breaking Down Fixed vs. Variable Costs in Recruitment
In order to optimize your recruiting budget, it’s important to understand the difference between fixed and variable costs and know what falls into each category. Here’s a breakdown of both terms.
Fixed recruiting costs
These are expenses that remain constant no matter how many employees you hire. Some examples of fixed recruiting expenses are:
- Recruiting software
- Salaries for in-house recruiters
- Employer branding like your website and content creation
- Memberships to industry organizations
Variable recruiting costs
These expenses can fluctuate based on your hiring volume or specific recruitment initiatives. Some examples include:
- Per-job or pay-per-click job posting fees
- Recruitment agency fees
- Candidate assessment tools
- Background checks
- Referral bonuses
- Relocation expenses
- Onboarding bonuses
- Event attendance fees
Tracking these costs and making distinctions between the categories can help you identify inefficiencies, allocate resources effectively and better forecast future hiring expenses.
What Should a Recruiting Budget Include?
Your recruiting budget should include all expenses you can plan for and leave room for miscellaneous expenses you might not be able to anticipate. Here are a few major line items in most recruiting budgets.
Labor
For most companies, labor is going to be a significant recruiting expense. This includes salaries and benefits for internal staff, like your recruiting and/or HR team, and third-party recruiters you contract with.
The good thing about labor is that it’s a very predictable expense. You should have a fairly solid idea of how much labor will cost you for the entire year. Barring any extraordinary circumstances, it shouldn’t change much from your initial estimate.
Related: How to Calculate Your True Labor Costs
Job boards
Consider how much you typically spend to post your jobs on third-party listing sites, whether you pay per job or a monthly or annual subscription fee. Many job boards have moved to a pay-per-apply model, while some let you purchase a slot for a fixed price. When deciding on where you want to advertise jobs you should understand the payment model and how it’ll affect your budget.
Related: The Best Places to Post Jobs
Advertising
This includes any time you pay to promote your job listings outside of the fee to place them on job boards simply. Things like sponsored LinkedIn or Facebook posts and trade publications ads fall into this category. Incorporating advertising into your recruiting budget is worthwhile because many ad mediums offer built-in analytics that can be a valuable source of insights.
Related: Creative Ways to Advertise Job Openings
Content marketing
Recruitment marketing covers your initiatives to attract candidates to your open jobs organically. These might include social media, blog posts, videos that showcase your employer brand, etc. Consider the cost of labor to produce content marketing materials and any required tools, like professional recording equipment.
Events
Recruiting events like job fairs and on-campus meet-and-greets can be a great way to connect with active job seekers. These events come with registration fees and costs for things like handouts with your employer branding and free giveaways. Also, the attendance cost of events like industry conferences should be included, which help recruiters expand their professional networks.
Technology
Technology includes all the digital tools that make your job as a recruiter easier, like apps, candidate assessments, and applicant tracking systems. It also includes setups and ongoing maintenance of the careers section of your website, as well as any other online channels you use to collect and process applications.
This is an important category to examine closely, as seemingly small subscription fees can add up when you have several recruiting employees who use multiple apps.
Related: Trending Recruiting Technology
Referral bonuses
Referral bonuses are paid to employees whose referrals result in successful hires. Historical data is useful for anticipating recruitment bonus costs.
If you’re launching a referral program for the first time, you can still use data from years past to help you make an accurate cost projection. On average, 20 to 50% of a company’s hires come from referrals. If you know how many employees you’re looking to hire this year, you can calculate how much that translates to referral fees.
Related: How to Make Your Employee Referral Program a Powerful Recruitment Tool
Miscellaneous
While you can’t predict the unknown, you can at least plan for it financially. Make sure your recruiting budget has a cushion for unforeseen expenses, such as travel incidentals and unplanned job openings due to resignations and terminations.
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How to Calculate Your Recruiting Budget
Determine recruiting goals
How many people will you need to hire? Which departments will be growing? What new skill sets do the company’s initiatives require?
Answering these questions is the first step in managing your recruiting budget because your goals should guide the things you spend money on. Having clearly defined objectives will help you decide what needs to be scrapped, changed, or added to your budget.
Related: How to Set Achievable Staff Growth Goals
Look at last year’s spend
Conduct a careful examination of the prior year’s recruiting expenditures. Where did you receive the greatest ROI from your efforts? What initiatives fell short and can be eliminated or overhauled?
Some costs, like subscription fees, will remain the same and will be easy to carry over from one year’s budget to the next. Others will be subject to changes you can anticipate, like raises or bonuses for recruiting staff.
For the rest, analyze how your spending needs to change from the previous year. For example, if one of your recruiting goals is to improve the candidate experience, you might need to add a technology line item for a helpful chatbot on your website. If your goal is to strengthen company security, you might need to plan for some events to help you connect with InfoSec candidates.
Consider cost per hire
To find your average cost per hire, divide last year’s total recruiting costs by the number of employees you hired. This will give you a good estimate of how every new hire impacts your bottom line. It can also show you how your budget needs to shift up or down based on whether you plan to hire more or fewer employees this year.
Tips for Maximizing Your Budget
Here are some tips to help you get the most from the money you spend on recruiting.
Prioritize quality over quantity
It’s a common recruiting misconception that more money = better results, but this is definitely not always the case. When we reviewed the recruiting metrics for one of our large corporate clients, we discovered that the majority of hires were coming from just two platforms. By eliminating the underperforming ones, we were able to save thousands of dollars with virtually no impact on hiring. Quality trumps quantity every time.
Focus on channels that deliver high-quality candidates versus just bringing in many applications. Having two or three highly qualified candidates with relevant skills is better than having 50 ill-fitting applicants. Use niche job boards and industry-specific platforms to minimize spending on irrelevant responses.
Invest in employer branding
A positive employer brand attracts candidates organically, meaning you spend less each time you need to hire. Invest in an engaging careers page, compelling employee testimonials, and a strong social media presence to showcase your workplace culture.
Leverage automation
Applicant tracking systems and AI-driven tools can save you time and money by streamlining processes like resume screening, interview scheduling, and candidate communication. Instead of paying for human labor, which is expensive, to manage these low-stakes tasks, you can invest once for a piece of technology to tackle it continuously. This lets your human team focus on actually building meaningful connections with qualified candidates.
Optimize job descriptions
Clear, engaging job descriptions are like a magnet for candidates who are a strong fit, reducing the time you spend filtering out unqualified applicants and actively sourcing good candidates.
Related: How to Write Job Descriptions
Advice on How to Manage Your Recruiting Budget
Track and analyze KPIs
Anecdotal evidence can be helpful, but monitoring your success metrics is the only way to know which recruiting efforts are working. Make it a practice to thoroughly document your spending and the subsequent results over time and analyze these numbers regularly to ensure your budget still makes sense.
Related: Key HR Metrics You Should Be Tracking
Consider specialized software
Spreadsheets work for managing recruiting budgets, but only to a point. Once your organization reaches a certain size, it’s incredibly helpful to use an app that’s designed specifically for recruiting purposes. A platform that incorporates applicant tracking and analytics, for example, can help you make more precise budgeting decisions based on the performance of each recruiting channel.
Don’t count out the cost of time
The cost of your time is often overlooked because it’s not as tangible as a flat fee for posting a job ad. However, employees’ time, especially at the managerial level, costs money.
It takes an average of 30 to 40 days to hire one employee. The more time you spend on each hire, the fewer employees you can hire without upping your recruiting staff. So, when creating your recruiting budget, it’s also wise to look for investments that will help you shave days off your time to hire.
Creating a thoughtful, thorough recruiting budget’ll ensure funds are available to hire the best possible employees while achieving organizational objectives. If you’re having trouble making the numbers work and would rather have someone else handle your recruiting, as always, our team is only a phone call away. Reach out and let us know how we can help.
