The biggest factor that determines whether your business will succeed is your employees. And with so many businesses competing for top talent, you need a solid plan for hiring season.
You also need to put the right amount of resources into recruiting, and advertising, networking, interviewing, and background checks all take a lot of time and money.
But if you set an adequate recruitment budget, you can cover all your essentials without overspending or wasting money on unnecessary elements.
So keep reading to learn how to set your recruitment budget to hire the right candidates.
What is a recruitment budget?
Recruitment budget covers the financial resources you set aside for your annual hiring needs. It may include things like:
- The salaries of hiring managers
- Subscriptions to hiring platforms and/or services
- Advertising for new hires
- Recruiting software subscriptions
- Background checks
- Digital tools, like talent management programs
- Candidate assessment tools (psychometric tests, aptitude tests, etc.)
- ‘Invisible costs’ include managers taking time out of their daily duties to hold interviews.
How can I allocate a recruitment budget?
1. Decide how many people to hire
Figuring out how many new people you need can be tricky because of resignations, sicknesses, hiring freezes, and unexpected sackings.
To work out a rough estimate, think about the current needs of your business and any future changes you already know about, like retirements, expansion plans, and your average turnover.
2. Calculate your expenditure
Employers often have to spend thousands per new hire. In the UK, this can reach as high as £22,515; in the USA, the average cost of hiring an executive is $14,936.
There is a basic formula for establishing the average cost per hire:
Average CPH (Cost Per Hire) = Internal Cost + External Cost/Total Number Of Hires Needed.
To get a more nuanced view of your recruitment budget needs, look at the kind of hiring you are likely to need and plan accordingly.
3. Consider your technology investments
To manage your recruitment budget effectively, consider investing in the right recruitment tools and technology to help cut costs in the long run.
An online accounting software can give you clarity when it comes to budgeting and save you a considerable amount of time.
The right software can also give you insights into your recruitment costs and hiring patterns that you may otherwise have missed. However, if you don’t want to invest in tools, outsourcing accounting could be another way to cut costs on finance.
Similarly, tools like applicant tracking systems can be a huge help when streamlining your recruitment process, and the right online recruitment platform can save you an enormous amount of time and money.
4. Analyze your fixed-cost and past data trends
If you look back at your previous years’ recruitment metrics, you’ll probably find some patterns.
While the pandemic may have skewed your figures for the past few years, you’ll still get a rough idea of your average turnover rate, the departments with the highest turnover, and so on.
You can also use fixed-cost data to establish a baseline recruiting budget. Fixed costs include software subscriptions, hiring platform subscriptions, and recruiter salaries.
5. Keep some buffer for unplanned expenses
You’ll always come across unexpected costs unless you are extremely lucky! Unfortunately, the recruitment process will end up costing more than you anticipate.
For example, you may need to hold more interviews than you expected to find the perfect candidate.
Background checks may be more extensive than you thought, or there may be additional advertising costs.
So, give yourself a buffer. Add more to your recruiting budget than the minimum amount you think you’ll need.
6. Find ways to save money
There are many areas in which you can save money. For example, investing in the right recruitment technology is often an excellent way to slash hiring costs.
New technologies, techniques, expectations, and opportunities constantly crop up. By integrating finance for improved cash flow, you can swiftly adopt new hiring tools and strategies and make your recruitment process faster, more efficient, and more cost-effective.
7. Present your budget to leaders & stakeholders
Once you’ve got a figure, it’s time to present it to your team.
Stress the importance of a good hiring process for company success and use data to support your proposal. This will give you a greater chance of having your budget approved, so you can start finding your ideal candidates.
3 ways to save money while hiring!
1. Build a talent network
A talent network gives you a pool of people to draw from without spending too much on advertising.
Career sites like LinkedIn are great for connecting with talent networks, but also consider freelance contractors and asking contacts you already have in your industry for recommendations.
2. Promote current employees and incentivize referrals
Existing employees often have great connections in their circle who have the potential to qualify as a candidate. So by starting an employee referral scheme, you can bring in some brilliant talent for a fraction of the cost of hiring blind.
3. Reduce employee turnover
By reducing employee turnover, you can significantly cut your hiring costs.
Look at things like improving job satisfaction, creating a rewarding team culture, listening to employee concerns, and boosting morale to create loyal employees.
4 major recruitment budget considerations
1. Company budget for the quarter
Your recruitment budget is dependent on the overall company budget for the quarter. So when you propose your budget to leaders, don’t forget to stress how vital a robust recruitment process is to the business’s overall success.
At the same time, don’t go overboard since you still have a limited budget.
Ensure that your recruitment budget stays within the reasonable parameters of the overall company budget.
2. Accounting and taxes
Accounting and taxes are crucial parts of any hiring process. A good accounting software can help you to set an accurate recruitment budget and identify ways to save money.
Every new employee brings tax implications–but you may also be able to write off some hiring costs against your tax budget. This is because hiring costs may count as reasonable expenses for running your business.
Accounts payable automation software can streamline the process, ensuring all your records are in one place and automating calculations for what you owe. Going digital with your taxes can make keeping track of everything much more manageable. All your records will be in one place, you’ll be able to calculate what you owe automatically, and you’ll be able to claim tax refunds on hiring costs all from one platform.
If you’re based in the UK, submitting your taxes digitally will soon be compulsory.
For those doing business in the US, you can find more on filing your taxes online and tax-deductible expenses by visiting the IRS website.
3. Consider your revenue return for the year
You’ll need to rethink if you cannot make your recruitment budget pay its way. Your recruitment budget should pay off in increased revenue for the year.
Managers and higher-ups approving your budget will be interested in the potential return on their investment. If the budget you have proposed will not repay itself in revenue terms, they are likely to refuse.
So, consider the impact your hiring process will have on revenue of the year when designing your recruiting budget.
By taking the time to calculate your expenditure, analyze past data trends, and invest in the right recruitment tools, you can create a budget that saves you money and helps you find your next purple squirrel.
So, to optimize your recruitment budget in 2023, start planning today and watch your business thrive!
Author’s Bio
Fabiano Rocha – Lead Product Marketing Manager, Sage Accounting, UKI & Canada GTM
Bringing nearly a decade of experience in understanding customer needs to inform product development and marketing, Fabiano currently delves into the challenges of sole traders and small businesses to champion ways that business owners and self-employed professionals can adopt to save time and optimize financial management tasks by adopting software and technology.
