The Cost of Hiring

Understanding the costs of hiring will help companies determine which recruiting model works best for them.  To make that determination, let’s review the variety of options available and each of their benefits.

Often companies begin with internal recruiting.  Filling open jobs from within, using employee referrals, internal advertising, and posting of jobs has several advantages.  It is cost effective, provides employees with a potential career path, boosts morale and provides a built-in knowledge base.  The downside is the candidate pool is more limited, less diverse and may create gaps in the organization.

External recruiting can mean using a variety of different methods depending on the type of role an employer is seeking to fill.  A company with a strong brand may attract enough candidates without needing to use any third-party intermediary.  They may maintain a database of good quality candidates that have interviewed for a different role, for future opportunities.  Staying connected with alumni who departed in good standing is another way to optimize your candidate database.  A robust candidate database helps to minimize hard costs associated with recruiting talent.

In a highly competitive labor market various other tools are available to assist in the recruiting process.   A company can start with a simple online classified website, such as Craigslist, a low-cost option that allows employers to choose the location and industry sector to post their ad.  Social media jobsites allow for job advertisements and candidate database searching or sourcing, think LinkedIn.

Job Boards are internet-based talent acquisition technologies that aggregate either local, national, or international job offerings.  Typically, employers pay up front to advertise the job offering for a set period of time.  Job aggregators pull jobs from other sites and use a pay per click pricing model when a candidate applies for a job. 

The methods above are relatively low out of pocket costs for talent acquisition.  Depending on the type of role, these tools work very well to find candidates.  If an employer is seeking to fill a senior executive position, a retained search provided by an executive search firm may be the right approach.  A retained search fee is paid up front and usually is paid if a hire was made or not.

Another method for recruitment is using the services of a staffing firm for direct hire, also known as permanent placement.  In this method the fee is only paid once a hire has been made and is typically a percentage of the annual salary for the first year.  It does not include commissions or bonus plans as part of the fee.  According to a recent survey by Staffing Industry Analysts (SIA), the median fee was 25% for a direct hire placement.

Staffing firms also provide temporary or contingent workers to assist employers, for a ramp up, a special project, long-term contracts or to determine if the employee is a good fit for the role.  The fee is determined by the overhead costs associated with the role and the mark-up by the staffing firm.

Depending on the role an employer is seeking to fill may well determine which method is used for sourcing a candidate.  If the role is customer interfacing or revenue generating, then a more targeted approach with the support of a staffing supplier may be appropriate.  If the company does not have a human resources team that includes recruiters establishing a strong relationship with an outside firm that understands the company culture and the types of skills needed for that company, may be the best available option for talent acquisition.

Prioritizing costs vs. efficiency vs. quality will help determine which method best suits your hiring needs.

The Cost of Hiring

Understanding the cost of hiring helps companies decide which recruiting approach works best for them. Let’s explore the key options and their benefits.

Internal Recruiting

Many companies start by filling open roles from within. Internal recruiting uses employee referrals, job postings, and promotions. This method offers several advantages:

• Cost-effective – No external fees involved.
• Career growth – Helps employees see a path forward.
• Boosts morale – Employees feel valued and motivated.
• Built-in knowledge – Candidates already understand the business.

However, the talent pool is limited, reducing diversity, and potentially creating skill gaps if employees move within the organization.

Some companies, especially those with strong brands, can attract candidates without needing third-party services. They may also keep databases of past candidates or maintain relationships with former employees to rehire them when the opportunity arises. Building a strong candidate database lowers recruiting costs in the long run.

External Recruiting

External recruiting opens new ways to find talent.

Online Recruiting Tools

In competitive markets, companies may rely on online tools to reach candidates:

• Classified Sites – Platforms like Craigslist offer low-cost, location-specific postings.
• Social media – Sites like LinkedIn allow companies to post jobs and search candidate databases.
• Job Boards & Aggregators – These platforms, like Indeed, charge upfront or per-click fees, making them scalable options for local, national, or global recruiting.

Executive Search Firms

For senior roles, companies often use retained search firms, which charge a fee upfront regardless of if a hire is made. This is ideal for businesses seeking top-tier leadership but willing to invest more in the process.

Staffing Firms

Staffing firms offer two main services:

1. Direct Hire (Permanent Placement) – The fee, typically 25% of the new hire’s first-year salary, is only charged once a successful hire is made.
2. Temporary/Contingent Workers – Useful for project-based work, seasonal surges, or contract roles. Fees reflect both the staffing firm’s overhead and mark-up.

Matching the Method to the Role

The best recruiting method often depends on the role:

• Customer-facing or revenue-generating roles may require a targeted approach with the help of staffing partners.
• Companies without dedicated recruiters may benefit from working with staffing firms that understand their culture and talent needs.

Balancing Cost, Efficiency, and Quality

Ultimately, prioritizing costs, efficiency, and quality will guide businesses toward the recruiting model that best fits their hiring goals.

For more information on the cost of hiring and the best option for your firm/company, you may contact Susan Crossett, CEO, CPS Recruitment at 315-883-5470, SCrossett@CPSRecruiter.com or visit online at www.CPSRecruiter.com.