As the new year approaches, most of the organizations, before closing their finances, are looking at managers across teams to collaborate and share the most optimized recruiting budget for the coming year.
Here is a 6-step guide to creating the most detailed recruiting budget sheet for your organization. Also attached is a sample sheet for your reference.
Step 1 – Calculating the number of hires
The primary expense for any organization is 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.
A sheet similar to the following one has to be circulated and filled by all stakeholders to understand how many new hires they might 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 – Estimating Basic Recruitment cost
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 – While most of the new startups do not keenly pursue job boards for recruitment ads, job boards still draw good attention from candidates and are frequently used by major corporations.
- Online job listing sites – Perhaps the most popular channel for recruitment, job posting sites are quite effective in helping you find the right talent. Go back to hires you have made last year, and see which listing sites have worked efficiently for every team. For example, while LinkedIn might have been very effective for hiring sales and marketing candidates, Stack OverFlow is better if you looking to hire a developer. Budget accordingly.
- 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, Video campaigns and many more activities which would be practiced had to be added.
- Interviewing Expenses – We have noticed that many teams usually miss adding this expense. Remember there are expenses associated with candidates’ travel/accommodation, interviewer/recruiter travel and other miscellaneous expenses associated with interviewing. Don’t forget to include these!
Look at the following sheet to understand better.
Steps 3 – Calculating 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 recruiting events like job fairs and conferences you plan to attend in the near future and budget them in your sheet. Make sure to include the cost associated with events, such as travel, lodging, and gifts, etc.
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 – Recruiting Technologies Cost
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.
Technical 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. Technical assessment tools like HackerEarth Recruit helps to improve hiring by 6X and reduce hiring cost by 10X. Such software also reduces man-hours by auto-evaluating each profile and providing detailed candidate reports.
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 come to the rescue. It would be good to budget for these as well.
HackerEarth Talent 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 increasing usage of social media and networking, referral hiring is a good way to save on the background check service. Calculate the cost accordingly.
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.
Step 5 – Miscellaneous
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 which 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 its 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
Ensure 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. We have tried to add all relevant expenses to make it simple for you.