How much should it cost to acquire and keep employees?
The moment you find yourself in need of new employees, you’ll be spending money. Not only do you lose money in productivity for every minute the position is vacant, but you’ll also need to spend a fair amount of money to find, hire, and train a new employee. The act of enlisting new help should be factored into your business budgets each year, but how much should you set aside to accommodate the cost of new hires? We have the answer for you.
The Average Cost of a New Hire
According to research studies on human resource practices, the average small company can spend anywhere from $3,000 to $8,000 to hire and onboard a new employee. This figure includes everything from advertising the role, the time spent away from revenue-making activities to interview, onboarding and training the recruit, and paying out human resource firms, if you choose to use one.
The Cost of Advertising
If you plan on hiring employees without using the help of a recruiter or HR firm, you’ll need to advertise the role. In years past you could pull resumes from a stack that you received unsolicited, but the art of finding a job has changed, and most companies will not have a backlog of resumes to pull from. Instead, you’ll need to advertise your opening online to find qualified candidates. The cost of online job boards is mainly dependent on the board you choose to use and the type of role you are looking to fill.
LinkedIn, a premier social networking site for professionals, uses a pay-per-click model for companies looking to advertise their jobs on the platform. The cost per click is dependent on the role, the industry and the location of the position. As of December 2018, in general, the cost per click ranged from about $1.00 per click to $1.50 per click. While this may seem reasonable, remember this is a cost per click, not a fee per applicant, so you will pay for every person that clicks on your ad, whether they choose to apply or not.
Monster and ZipRecruiter, on the other hand, offer a monthly subscription. You will need to pay between $250 and $400 each month that your job is posted online. This fee is paid whether you garner potential applicants or not, and you will need to spend time sorting through applicants and resumes to find qualified candidates on your own.
Using External HR Firms
Many small businesses choose to hand over the early stages of the hiring process to HR firms. Human resource firms are often utilized by small companies and startups to outsource the process of advertising and screening potential employees in the early stages of hiring. In most cases, an HR firm will only be paid once an employee is hired and has successfully worked for the company for 90 days.
The cost of an HR firm depends a great deal on the type of job you are looking to fill, but most recruiters are paid a percentage of the new employee’s salary once the placement is successful. The percentage ranges from 15% to 25% depending on the role, with senior level roles garnering a higher rate.
That is to say that if you are looking to fill a role with a salary of $50,000, you can expect to pay between $7,500 to $12,500 for the hire. You, as a small business owner, do not have to use an HR firm to find recruits, and whether you use one will largely depend on whether you have the time to advertise and screen potential employees yourself, and if you have enough money in your business budget to outsource the hiring process.
The Price of Onboarding and Training
In most scenarios, an employee will not be fully entrenched in day-to-day operations from day one. According to recent research, it can take anywhere from 8-26 weeks, depending on the industry and position, for a new hire to be thoroughly trained and productive. A new hire will cost about 1% of annual revenue to bring up to speed. Eventually, a new employee will add to the revenue of the company, but during their onboarding process, they are costly. To ensure you are going to receive a return on your investment it is essential to look for employees who will be with your business long-term.
How much you’ll need to set aside in your business budgets for new hires and training employees will be largely dependent on your business, how much you plan to grow in a year, and exactly what type of roles you’ll be fulfilling. To figure out exact numbers, it is a good idea to discuss the hiring process with business consultants who can help you figure out what the cost of a new hire is for your exact industry.
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