What Does IT Recruitment Really Cost?

What does recruitment actually cost? The short answer is that recruitment can come with a price tag ranging from a few thousand up to 80.000 Euros.

The cost varies depending on several factors, such as failed recruitment, salary levels, and lengthy processes, to name a few. Generally, the choice of the recruitment process plays a crucial role in what you pay in the long run. To recruit as cost-effectively as possible, it is important to find an approach that suits your company.

Here, you can read more about how different processes and factors influence the cost of hiring personnel in the IT and Tech sector.

As mentioned earlier, the price of recruitment can range from a few thousand up to 80.000 Euros. This includes all costs related to the recruitment, both indirect and direct, internal and external.

What you actually pay for the entire recruitment depends on various factors. Industry, recruitment process, skill requirements, salary levels, and advertising costs are some aspects you need to consider when calculating the cost of recruiting new personnel.

There are various types of recruitment processes that come with different costs, risks, and advantages so let’s have a look at them.

In the past, it has been common for companies to either hire a traditional recruitment agency or handle the process in-house. More recently, new models have emerged on the market, such as TaaS (Talent as a Service).

The best approach for your company depends primarily on budget, resources, network, and how quickly you need to hire.

Traditional recruitment agency — paying the entire recruitment cost upfront

Companies that hire a traditional recruitment agency usually seek assistance with the entire process, from needs analysis to contract signing.

Typically, the company that hires a traditional recruitment agency receives a fixed price that they pay at the beginning of the process. The price is usually based on a certain percentage (generally 18-24%) of the annual salary for the position to be filled.

You rarely get the money back in case of a failed recruitment and instead need to pay the full amount again. There are offers where the company does not have to pay if the recruitment agency can´t find a suitable candidate at all, but no security if the candidate leaves after a short period with the new company.

Advantages:

• An experienced recruiter handles the entire job for you.
• A recruitment agency often has a candidate pool and a broad network.
• The process requires minimal involvement from your side.

Disadvantages:

• You pay everything upfront before the process begins.
• Many recruitment agencies have a general focus and less insight into work culture and company values as well as specific candidate skills.
• In case of a failed recruitment or if the person leaves within a few months, you need to start over and pay the full cost again.

Some companies choose to handle the recruitment in-house, meaning that the company manages the entire process without hiring an external party.

The costs of hiring in-house are not always as tangible since they are ongoing internally. Most companies set clear timeframes for how much time they will spend on each candidate and step in the process. This way, they can estimate the total cost by calculating, for example, resource needs and salary costs for those involved in the process.

To calculate the cost, you can, for example, multiply your hourly wage by the total number of hours you spend on all steps. The same applies to other involved colleagues. Also, consider the costs of any tools, tests, and travel expenses.

Advantages:

• You have full control over the entire process.
• You get to know the candidate(s) better.
• You don’t pay external costs or fees.

Disadvantages:

• It can be challenging to set up an efficient process.
• You need to purchase software programs, tests, and other tools yourself.
• It can be difficult to get a clear overview of the cost per hire.
• It can become a lengthy process that distracts from other tasks.

TaaS stands for Talent as a Service and is a relatively new concept within the world of recruitment. Different TaaS models may vary to some extent, but overall, it involves a company hiring a recruitment agency to help them with Talent Acquisition during a given subscription period.

The main difference between the TaaS model and a more traditional recruitment model is that the recruitment cost is divided during the subscription period. Instead of paying the full amount upfront, the majority of the cost is paid once the right candidate has been found and started.

Let’s say, the subscription runs for 3 years, and you pay a fixed amount at different times. It could be, for example, 1000 Euros at the start of the collaboration, 1.000 Euros upon contract signing, 1.000 Euros when the candidate starts, and then 1.000 Euros every quarter until the subscription ends, but only as long as the candidate stays in the role. In this case, you would have paid a total of approximately 15.000 Euros over the course of 3 years.

If you choose to terminate the candidate’s employment or if the person voluntarily leaves, the recruitment agency will usually help you find a similar candidate while the subscription is still active. This means that the costs associated with a failed recruitment decrease drastically since you don’t have to pay the full recruitment cost, nor pay a full recruitment cost again.

Advantages:

• You pay continuously instead of upfront.
• The costs in case of a failed recruitment are often significantly lower.
• An experienced recruiter handles the entire job for you.
• A recruitment agency often has a candidate pool and a broad network.
• The process is smooth and requires minimal involvement from your side.

Disadvantages:

• Many recruitment agencies have a general focus and less insight into work culture and company values.

Some companies hire a recruitment agency to handle parts of the process and then manage the rest in-house. For example, a setup where a company lets an external party find and make an initial selection of candidates that match the job profile, and then allocate internal resources to take over after the initial selection is made.

This way, the costs are divided externally and internally, which can be a cost-effective way for companies to get help with individual parts of the process.

Advantages:

• An experienced recruiter helps you with challenging parts of the process.
• You manage some parts of the process yourself, often leading to better acquaintance with the candidate.
• Costs are divided both externally and internally.

Disadvantages:

• You need to pay part of the costs upfront.
• In case of a failed recruitment or if the person leaves within a few months, you need to start over and pay external costs again.
• It can be challenging to set up an efficient process.
• You might need to bear the cost of certain software programs, tests, and other tools yourself.
• It can be difficult to get a clear overview of the cost per hire.

As already mentioned, recruitment costs depend on various aspects. Apart from the recruitment process, what affects the final cost? Here are some aspects that can influence the cost of recruitment:

The industry can play a significant role in the total cost. Taking IT and Tech as an example, the competition and shortage of candidates are severe. This means that recruitment in the IT and Tech sector is often time-consuming, challenging, and relatively expensive.

It has been reported that finding candidates with the right skills within IT and Tech is difficult. Many companies are currently in a situation where their digital development is fast-paced and dynamic, which demands finding candidates with the right skills and qualities.

In a survey conducted in 2022, recruiters and HR specialists worldwide stated that the most challenging role to recruit for in 2023 would likely be full-stack, followed by back-end and DevOps. Therefore, companies planning to recruit for these roles may experience a more complex and lengthy process due to high global competition. This, in turn, can affect the costs of finding and attracting talents that match the job profile.

The salary level for the position you are recruiting for plays a significant role. Especially if you hire a traditional recruitment agency, as they often base their fee on the salary you offer the candidate.

You also need to offer a competitive salary to attract and retain the top talents. For example, salary levels for employees in IT and Tech are relatively high compared to other industries, which means you must compete with other companies to onboard the best candidates.

It is essential to consider that there might always be additional costs, both anticipated and unforeseen. Anticipated costs can include recruitment tools that facilitate the process, as well as marketing and advertising expenses. Unforeseen costs can include expenses resulting from a failed recruitment or an extended process due to challenges in finding the right candidate.

It is essential to set up a realistic and effective plan for training and onboarding. From the moment you find the right talent and sign the employment contract, you need to allocate time, resources, and sometimes a budget to integrate the new hire.

Regardless of the approach, a new hire always requires more or less time and attention from internal resources. Those involved in the process may need to prioritise certain daily tasks during the recruitment period affecting their usual tasks.

Reduced productivity indirectly affects the overall cost. Especially in cases of prolonged and extended recruitment processes, it can become a significant expense in the long run. This is especially true when key internal personnel need to allocate time for recruitment.

There is a way to calculate the cost of recruitment, known as Cost-per-hire or CPH. To calculate CPH, you add up all internal and external costs and then divide the resulting sum by the total number of hires made during a given period.

Remember to include all costs, both indirect and direct, to determine the actual cost of hiring new personnel.

To calculate the overall cost of recruitment, you also need to take into account costs that arise due to potential challenges and mistakes, such as failed recruitment.

Failed recruitment happens when the hired individual is not a good fit for the position. It can be due to a mismatch in technical skills or company values. Consequences may include increased costs due to underperformance, heightened conflicts in the workplace, or high employee turnover.

Depending on the recruitment process, the total cost can reach up to 50.000 Euros or more. This is because you often have to pay parts of or the entire recruitment cost multiple times.

However, there are ways to reduce the risk of paying dearly for a failed recruitment. A well-planned and executed recruitment process can, for example, decrease the risk of hiring a candidate who is not a good match.

INSCALE has developed a TaaS model that allows you to hire new personnel seamlessly and confidently. We specialise in helping Scale-ups and SMBs find IT and Tech talents who possess both technical skills and personal attributes that fit with your company.

Our subscription-based collaboration spans over 3 years. If you or the candidate decide to end the employment during this period, we ensure finding a similar candidate at no additional cost.

We simply make sure that your IT talent needs are met throughout the subscription period.