Part of the reasons why businesses hesitate to go into the hiring cycle is the actual cost of getting a new team member on board.
In fact, hiring costs are easy to miss, as they are not typically part of the “HR costs”.
It may seem that, in the process of hiring, you are paying only for posting the job ad and have no other costs further on – but that’s not the case.
Digging into the details of every hiring stage, the costs turn out to be huge!
Hiring costs are going way beyond just the job ad price, despite what companies might be tricked to believe. Moreover, it takes a lot of hiring experience to pinpoint the best candidates and get it right every time.
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Without the seamless processes, experience and a lot of time, the hiring process can cost a fortune and slack behind for months.
The true cost of hiring a new employee
The costs vary from company to company, based on various:
- company needs,
- positions and seniority,
- hiring policies.
We decided to extract the core processes a company goes through when hiring.
The phases mentioned below are variables that will help you get to the bottom of your hiring costs.
1. Advertising costs
Quantity yields quality in most cases.
To get to the best candidates there are (and there is a plethora of them on the remote job market), you need to invest in advertising.
The first step is to post the job ad on one of the online job boards.
The pricing can vary substantially and can get from 50 to 200+ dollars for posting and ad for one job:
- We Work Remotely -$200 for 1 job posting for 30 days
- Upwork – 2.75% of fees on every payment
- Outsourcely -$59 a month
- JobRack – $50 per job post when you buy a pack of 5
After putting a job post online, it is an often scenario for companies to go ahead and advertise a job post on Facebook or Google using PPC campaigns.
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By pushing the online job posting through any of these channels, companies narrow down the choice of the potential team player.
Well, you are not directly targeting only the people who are experts in a specific industry, but also experts who are experts in a specific industry with certain qualities and values that we can choose by narrowing down interests while advertising.
Advertising costs can go through the roof, or – if you are lucky, lower.
Depending on the position, the cost per click can go anywhere from 0.50$ to 4-5$.
2. Time costs
You are not mistaken if you think you are always short on time.
Time is the scarcest resource which also drags other resources with them down the line. That said, hours spent on a certain task also have a toll on energy, creativity and productivity levels.
So, what tasks are the most time-consuming when it comes to hiring a new employee?
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No matter if it is the business owner or a top manager dealing with the process exactly, there is a list of things every hiring process entails for a recruiter:
- Preparing the posting – to attract best candidates, it’s important to have a well-crafted job posting that will elegantly present all the ins and outs of the position and present the company culture well.
- Sorting applicants – depending on the position, the ads can generate an unimaginable influx of CVs; the companies need to go through each and every one of them in order not to miss a gem,
- General communication and prescreening – before inviting job seekers to an interview, companies often do a pre-screening to narrow down the choice who they are going to interview.
- Interviews – Average length of an interview call that should substitute an in-person meeting is 45 minutes. This means it would add up lots of hours when interviewing 10+ people to get it right the first time.
These four steps can require massive hours that drain work weeks of busy managers and CEOs.
How to determine the expenses of this phase?
Simply fill in the spaces below, and get a rough estimate of the dollars poured into hours spent:
___ $ per hour x ____ hours = _____
3. Testing costs
It’s necessary to cut back on time lost interviewing candidates who do not match the skillset the company is looking for.
Well-crafted tests can come to the rescue to avoid meaningless interviews. Initial tests can provide the company with result-driven assessment in the first round.
However, as you probably know it yourself, creating a good and meaningful test is not an easy task.
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Because of this, most companies avoid preparing their tests in-house, as it is extremely time-consuming and requires vast experience.
In those cases when a company does go with in-house testing, determining the costs will depend exclusively on the person put in charge of creating the test.
Then, the formula we had above repeats itself, as it means a time investment again:
___ $ per hour x ____ hours = _____ $
The second option is to manage test creation by acquiring testing tools. Among the most popular testing suits are:
- Athena Assessment (10 tests for 500$)
- Interview Mocha (100 tests for 6 months for 299$)
- DevSkiller (6-month access to their task database for 654$).
4. Opportunity cost
The cost that all businesses eminently pay when hiring slow is the opportunity cost.
The longer a company waits for the right employee to come through their door and start tackling the tasks, the longer their projects and business stay still.
Inexperienced hires or extremely busy managers not sticking to the time schedules can take longer to get through the entire process.
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Let’s assume that for example, the whole hiring process is projected to take 1 month.
However, due to busy schedules or getting tangled into the process, it takes longer (let’s say: 5 months).
Comparing the projection with the actual time needed gives us a 4-month period where nothing happened to make progress.
The result is a loss of not starting to act upon the project that could have started 4 months earlier.
Pro tip: Don’t try to cut short and move the process forward to soon. You can make a big mistake of hiring too early, which can also be detrimental to your business.
How much do bad hires cost?
Assessing risk is important to keep an eye on if a company want their business to move further.
Making the wrong choice when hiring a new person on the team can turn into a significant loss for the business.
First, there are the costs mentioned above (advertising, time spent, testing and opportunity costs).
Then, the salaries the employee received while working with a company.
And to top it all – the training a company had to invest in onboarding the employee.
According to the U.S. Department of Labor, the price of a bad hire is at least 30 percent of the employee’s first-year earnings.
For a small company, an investment like this (a third of the employee’s yearly salary) gone wrong can be a real kick for the business.
Looking to save on hiring costs?
Get in the line, you’re not the only one.
If you’ve done the calculations based on the formulas above, you’ve probably already reached a 4-digit number.
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All of this being said, it’s completely understandable why companies slack on the whole hiring process for months and some firing processes even for years. Knowing the amount of effect hiring too early or too late can have for your business is a kick.
But, in the perfect world, everyone should do what they are best at.
Connecting over 500 companies with an enormous database of Eastern European job seekers, JobRack has made it’s hiring process impeccable.
Outsourcing the hiring process will allow any company to focus on the core activities for their business – and get the best match candidates delivered in their inbox.
Our Done For You services have been crafted specifically to help out small business owners get the best possible match for their new company team player. Head to our pricing page to check it out or should you have any questions do not hesitate to drop us a line.
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