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True Costs of the Most Common Five Recruiting Options

True Costs of the Most Common Five Recruiting Options

By MarkD

“If you think it’s expensive to hire a professional, wait until you hire an amateur.” – Red Adair

You have a role to fill in your company.  Perhaps the company is growing and this is a new position. Maybe someone has left for one reason or another, and you are refilling the vacated role.  Either way, you need a qualified person and it’s up to you to find them.  This is not a decision to be taken lightly.  According to this report by Northwestern University, hiring the wrong person with a salary of $50,000 can cost your organization $15,000 or more.

We previously discussed five recruiting options to consider when deciding HOW you want to go about finding the right person. In this article, we will talk about the COSTS of five recruiting options: in-house referrals, self external job posting (i.e.- Indeed, LinkedIn, Monster, etc..), and three ways recruiters work (Contingent Recruitment, Retained Recruitment, or Guaranteed Placement Recruitment). 

REFERRALS

You theoretically already like your current staff and each of them has a network of contacts.  It stands to reason that an easy place to start is asking your current staff to provide referrals.  Most companies offer an incentive bonus for referrals. These bonuses usually run between $1000 and $2500 with stipulations that the new employee stays on the job for a certain amount of time. As we discussed in our previous blog on the Different Kinds of Recruiting, employee referrals are limited to your staff’s network.  However, referrals are consistently a top source of hires and statistically tend to be more satisfied with their job and stay longer in a position.  

SELF EXTERNAL JOB POSTING

There are many recruiting websites companies use to post their job openings.  LinkedIn, Indeed, Monster, and ZipRecruiter are among the most popular.  The cost to post a job ad can run you anywhere from free to upwards of $700 per month, depending on what geography you’re targeting and how visible you want your job to be to job hunters.  

To properly figure out the cost of this method, you have to take into account the amount of time either you or your HR Manager will have to devote to finding this new employee: writing a job description, determining the correct salary range, posting the job to online resources, pouring through resumes, vetting the candidates, contacting the candidates, arranging and conducting interviews.  You’re fortunate if you have an HR team dedicated to this process which can become quite an investment in company resources (namely time and money).  

How much of an investment depends on how much you (if you don’t have an HR Manager) or your HR Manager gets paid and how much time will be spent recruiting versus doing other job-related activities.  The US National Average for a Human Resources Manager salary is $80,633*.  That means, the time it takes for them to do all the things I just listed is costing about $39 per hour.  You can quickly do the math based on other salary ranges, including your own to figure out how much this effort would cost for you to do it yourself.  It might be more worthwhile for you to focus on your own job though, so let’s say you want to outsource the recruiting – you have a couple options there as well.

CONTINGENT RECRUITING

The more common method of recruiting is called Contingent Recruiting.  It is also sometimes referred to as No Win, No Fee Recruiting.  Basically, it boils down to, you don’t pay until you hire one of the candidates submitted by your recruiter.  Their payment is contingent on the role being filled, but what does that payment actually look like?

A typical Contingent Recruiter is paid a percentage of the total first year salary (base plus bonuses) of the candidate you hired from them. The percentages range anywhere from 10% to 30%** of that salary, but Forbes narrows that range to 15% to 25%, so let’s take 20% as the average.  If you just hired a new employee who is making a $100K salary, the recruiter will cost you $20,000.  Of course, that fee goes up or down based on the position’s salary.  

RETAINED RECRUITING

A Retained Recruiter can cost more, but they typically spend more time with you, the client. You tend to get fewer, but more quality & targeted, submissions from the recruiter. Some Retained Recruiters are paid the same way Contingent Recruiters are compensated: as a percentage of the candidate’s first year salary.  According to Charles Aris Executive Search, the percentage does tend to be a little higher with Retained Recruiters in the 25%-35% range (as opposed to the 10%-30% for most Contingent Recruiters).   

A payment plan is also not uncommon for Retained searches.  If a position is being listed at $100,000, your recruiter may ask for 5% up front to begin the search.  That’s $5000.  Another 10% is due when you are presented a short-list of qualified candidates.  Another 10% would become due once the candidate is hired.  Your total cost would be $25,000.   

Some Retained Recruiters have a flat rate for their services and it is very common that they are paid all or some of their fee up front.  Essentially, you have retained them to find you your perfect candidate.  It should be noted that charging a flat fee in recruiting often works to the benefit of the client, not the recruiter.  Knowing the fee in advance makes it easier for you to budget.  For the recruiter, a flat fee doesn’t take into account the risk involved in a search and can often be lower than a potential payout for a higher salaried position.

GUARANTEED PLACEMENT RECRUITING

As with the other recruiting methods, it’s a little difficult to pin down an exact number for Guaranteed Placement Recruiting fee.  A Guaranteed Placement Recruiter will work with a client on a more personal level like a Retained Recruiter would.  The Recruiter will meet with you to gain a full understanding of the role to be filled, vet hundreds of potential candidates, work with you to modify the job search based on the results, communicate with you regularly, submit only the best few candidates, coordinate interviews, do background checks, and finally act as a liaison between you and the candidate for negotiating terms of the offer.   

Almost all recruiting firms have some sort of guarantee for their work.  Some offer a refund of the fees if the candidate doesn’t work out.  Some offer to refill the position for little or no extra charge.  The terms can also vary depending on the recruitment agency, however almost 90% of recruiters surveyed offer between a 30 day and a 90 day guarantee.

Again, some firms that offer this level of service can charge a flat rate that is in the range of a Retained Recruiter.  Some firms work on a percentage of salary as both Retained and Contingent Recruiters will use.

DyNexus Group employs the Guaranteed Placement style of recruiting for a flat up-front cost.  Engaging us in a recruiting effort will cost $20,000.  If you are an Acumatica Partner or Customer and either engage us in a recruiting effort or hire someone directly from our Certification2Hire Program, the cost to you is always $15,000.  Filling an Executive or C-Level position for an Acumatica Partner or Customer will always cost $18,000.  We aren’t always the cheapest option out there (especially if you are using a Referral Program).  We also aren’t the most expensive (hiring an employee with a $100K salary could cost you $10K – $35K depending on the recruiter you use).   

COST OF RECRUITING

We hope this gives you a better understanding of how you can anticipate spending your money when you need to hire a new employee, no matter which recruiting method you choose.  If you want a bit more information about how the various recruiting methods differ, other than by cost, we delve into those details in our blog “The Different Types of Recruiting”.  

*Workable HR Manager Average Salary 

**Small Business Chronicle “What Is a Contingency Fee in Recruitment?”

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