6 Steps to Create a Detailed Recruiting Budget (+Free Template)
Recruiting new people is exciting. But, the additional costs that come along with it? Not so exciting.
In fact, these costs can be dreadful if you have not planned a recruiting budget to keep a bull’s eye on your overall costs.
That’s what we have:
- put a detailed guide on the 6-step process to create detailed recruiting budget sheet
- created a free recruiting budget template downloadable for you to get started
What is a recruiting budget?
A recruiting budget is the financial plan adopted by businesses and human resources teams to manage all the expenses related to hiring processes. This includes:
- posting jobs
- investing in tools and services like ATS, assessments, video meeting software
- using external recruitment agencies
- doling out bonuses for referral programs.
For example, if your organization invests in job posting platforms, and recruitment tools like skills assessment and video interview software, and conducts employer branding events, then you need to calculate the overall costs for these activities.
These activities are handles by the HR department. A specific amount of money is allocated to each HR manager for these activities. They need to inform the HR department before making these investments so they can approve them and keep in the records.
Essential components of a recruiting budget
Drafting a recruitment budget goes beyond just looking at how much you want to spend on job ads. Consider the following critical components:
Job advertising: Allocate funds for platforms like LinkedIn, job boards, and niche industry sites.
Recruitment technology: Include costs for Applicant Tracking Systems (ATS), AI recruiting tools, and other software that streamlines the process.
Talent sourcing: Set aside funds for strategies such as headhunting, talent pools, and referral programs.
Candidate experience: This encompasses costs related to improving the interviewing experience, like travel reimbursements, meals, or gifts for candidates.
Training and onboarding: Consider the resources needed for onboarding new hires, including training programs, workshops, and materials.
Background checks: Budget for third-party services that conduct background verifications, drug tests, etc.
Recruitment events: Whether it’s hosting job fairs, attending university recruitment drives, or setting up booths at industry conferences, there are associated costs.
Agency fees: If you’re using a recruitment agency or external consultants, their fees need to be accounted for.
Internal costs: Think of HR salaries, office supplies specific to recruitment, and other overheads.
Miscellaneous and contingency: Always set aside a portion of your budget for unforeseen costs or opportunities that might arise.
How to create a recruitment budget
Step #1: Calculate the number of hires
The primary expense for any organization: its employees. Before starting with the math, get on board all the managers to understand their requirements in terms of new hires in the coming year.
Circulate a sheet similar to the following one and ask all stakeholders to fill it. This will help you understand how many new hires they may need in the coming year.
Based on this data, the budget requirement can be determined more accurately.
Along with these number, you will need
- Expected designation: Knowing if the roles are for interns, managers, senior managers, etc. will help estimate what the likely expenses, both quarterly and annual, are for specific teams.
- Skills: In case you need to collaborate with external agencies, having a good idea about the niche skill sets your organization is looking for help; also, you might have to start this process early.
According to Sharon Jautz, Head of HR, WGSN
Not accounting for the length of time role will stay open. I have a rule: If you have met with at least 10 candidates and the role is still open, you need to reevaluate the role, decide if you need it and reevaluate your interviewing criteria.
Along with these numbers, what is needed to be taken into account is the turnover rate for each team and for the organization. The HR team needs to have a good understanding of how many employees would be leaving the organization in a particular year.
So, if the turnover rate is 10% and your total employee count is 2000, it means that 200 employees would be quitting the company next year. Hence, if you are looking to hire 160 new employees (from the above table), your actual count increases to 360. 200 for employees who have quit and 160 new employees.
Going back to past few years number and calculating turnover (If you do not have the number refer to average turnover over rate for industries from the web) for each team, give you an exact measure of the number of hires you would be hunting for in the coming year.
Step #2: Estimate basic recruitment costs
Recruitment costs refer to basic expenses associated with the hiring and recruitment process. These expenses are mostly recurring and often billed early in the year.
This cost may vary for each organization, but you have to consider common expenses across boards to have rough estimates.
- Job boards: They are a great starting point to draw attention from candidates, and are frequently used by major corporations. For example, Cutshort, Indeed, LinkedIn and Stack Overflow.
- Salaries: Occasionally, teams collaborate with contract-based recruiters and agencies on yearly basis. Don’t forget to add their salaries too.
- Employee branding: Branding campaigns, career page optimization, and video campaigns—these are just a few ways you can amplify your employer brand and educate employees about why they should work in your organization.
Look at the following sheet to understand better.
Steps #3: Calculate the fixed cost
Fixed cost are costs associated with your recruitment process happens yearly and is usually processed in an orderly manner like salaries, partnerships, recruitment agencies, etc.
- Internal Salaries: Calculate internal salaries for existing employees. Make sure to add your HR team. The rules say for every 50 employees you should have 1 HR. Budget your internal salaries accordingly. Also, take into account the expenses if you are looking for new team members.
- Partnerships: Calculate the cost of any yearly partnerships which you plan to commit to. These partnerships can include an external recruitment agency, event agencies, social media promoters, and others.
- Recruiting events: Make a list of all upcoming virtual recruiting events like conferences you plan to take part in, in the near future and budget them in your sheet.
As Neil Williams from AVI-SPL says
I found that fees associated with events such as job fairs including air travel and lodging can be easily missed. Remember to think of each event from start to finish and all the necessary logistics involved.
- External recruiting agencies: Most of the companies tie up with external recruiters agencies or independent recruiters who help them hire candidates, especially for niche skills. Think of the approximate number of hires you plan to make for the year. Factor in the cost associated with each hire (paid to the external recruiter) when you prepare the budget.
Step #4: Estimate recruiting technology costs
Technology is a great enabler. As HR evolves with enabling technologies like talent assessment software and video interviews, companies can expect better recruitment and overall management.
Coding assessment software
While candidate sourcing is managed by multiple agencies, job portals, and social channels, it is imperative you evaluate candidates on the right parameters. Coding assessment tools like HackerEarth Assessments helps reduce hiring costs by 10X.
Companies have also been using HackerEarth talent assessment software for university hiring by evaluating candidates remotely—reducing large cost (travel, stay, man-hours, etc.) associated with campus placement.
Video interview software
While assessing candidates can be managed by technical interview software, an organization should evaluate the candidate in person before selection. However, candidates are often scattered across the globe and the cost associated with their travel becomes too high. This is where video interview software like EasyHire and Kira Talent comes in.
HackerEarth’s coding assessment software is accompanied by video interview software called FaceCode, which helps you assess candidates on their real-time coding skills while interviewing them. Since these features are bundled, there are more savings to be had!
Background check service
A background check is an essential service used by organizations to verify a candidate’s credibility. Major global organization work in this field and charge relatively high fees in verifying all the relevant information.
With the increasing usage of social media and networking, referral hiring is a good way to save on the background check service. Calculate the cost accordingly.
Candidate pre-boarding has evolved a lot over the last few years. With multiple options in hand, candidate ghosting has been a major menace for the recruiters. It is extremely essentials to keep your candidates way before joining, helping them understand their role, responsibility, and progression.
Companies using pre-boarding software have seen reduction in drop-off by more than 45%. Some of the top pre-boarding software available are Beamfox, BoardOn, Talmundo.
Application tracking system (ATS)
Application tracking systems have not evolved much since their inception in the mid-90s. But due to high dependency on them, most of the organizations still prefer to have a good part of their expenses dedicated to ATS.
Application tracking systems help follow the entire journey of a candidate, from sourcing, interviewing, joining, to exit. Some of the top ATS across the globe are Taleo, Greenhouse software, iCIMS, JobVite.
Also read: Remote Work and Recruitment: An ATS Story
Step #5: Estimate your miscellaneous hiring costs
Tying in the ROI on the unexpected expense with the broader strategic HR and/or organizational plan helps get stronger buy-in for unexpected added costs
Ensure you make allowances for miscellaneous expenses that pop up frequently in your hiring cycle. A few expenses relate closely to the internal campaigns you decide to run with referral bonuses taking up the major chunk.
Next, average out all incentives paid in the last two years to have an approximate idea about the budgeting for incentives to be rolled out in the appraisal cycle. It is essential to keep a check on inflation and the industry-standard before zeroing in on a certain amount.
Some companies regularly offer bonuses to their employees, sometimes in the festive season or when the business has had a great year. Discuss with the leadership on the target goals, and any bonus roll-out in case targets are achieved.
Step #6: Calculate cost per hire
And the most important step, calculate the cost per hire before finalizing the budget. If you have a previous budget to refer to the cost per hire for earlier years, then calculate expected expenses for the coming year.
According to Neil Williams, HRBP, AVI-SPL
Calculate it by adding the actual recruiting expenses from last year and divide by the number of hires you made. Then, multiply your average cost per hire by the number of hires you plan to make this year. Add all projected internal and external costs.
The basic formula for cost per hire is
Cost per hire = Internal Cost + External Cost / Total Number of Hire
Make sure that your cost per hire should not increase exponentially for any given year and should be in sync with inflation, revenue growth, and a number of hires.
Tips for managing tech recruitment budget
Here are some tips for managing your tech recruitment budget effectively throughout the year:
- Plan ahead: At the beginning of the year, take some time to plan out your hiring needs for the year. This will help you to estimate how much money you will need to spend on recruitment.
- Set a budget and stick to it: Once you have a good understanding of your hiring needs, set a budget for recruitment. Be sure to include all of the relevant costs, such as job postings, advertising, recruiter fees, and background checks.
- Track your spending: It is important to track your spending so that you can stay within your budget. This will also help you to identify areas where you can save money.
- Use free and low-cost recruitment tools: There are a number of free and low-cost recruitment tools available. For example, you can use social media to post job openings and to connect with potential candidates. You can also use free job boards, such as Indeed and LinkedIn.
- Partner with recruiters: If you have a lot of open positions, you may want to consider partnering with a recruiter. Recruiters can help you to find qualified candidates and to manage the hiring process. However, it is important to note that recruiters typically charge a fee for their services.
- Invest in employee referrals: Employee referrals are a great way to find qualified candidates. Encourage your employees to refer their friends and colleagues for open positions. You can also offer incentives for employee referrals.
- Hire for soft skills: Soft skills, such as communication, teamwork, and problem-solving, are just as important as hard skills in the tech industry. When hiring, be sure to assess candidates’ soft skills in addition to their hard skills.
- Negotiate salaries: When negotiating salaries, be sure to factor in the cost of living in the area where the candidate will be working. You should also consider the candidate’s experience and skills.
- Offer competitive benefits: In order to attract and retain top talent, you need to offer competitive benefits. This includes benefits such as health insurance, paid time off, and retirement savings plans.
- Review your budget regularly: It is important to review your recruitment budget regularly to make sure that you are on track. You may need to adjust your budget based on changes in your hiring needs or the market conditions.
Plan your recruiting budget effortlessly
Make sure that your cost per hire should not increase exponentially for any given year and should be in sync with inflation, revenue growth, and a number of hires. Download a sample budgeting sheet for the coming recruiting year.
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