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How much does recruitment cost?

The cost of recruitment varies depending on the method chosen for hiring new staff.

There are two primary approaches to recruitment: Do It Yourself/In-house Recruitment and using the services of Recruitment Agencies or Consultancies.

Do It Yourself/In-house Recruitment

The most cost-effective option for recruitment is managing the process in-house. This method primarily involves advertising costs, which can be minimal if using free platforms such as LinkedIn or certain job boards. However, the time spent reviewing responses and CVs should be factored into the overall cost. Generally, the budget for in-house recruitment is less than £1,000.

External Recruitment Agencies and Consultancies

External recruitment agencies and consultancies usually have higher costs, as they provide specialised services. There are three main types:

  1. Traditional High Street Agencies
  2. Executive Search Consultancies
  3. Niche Specialist Consultancies

Traditional High Street Agencies

Traditional High Street Agencies typically operate on a contingent (no placement, no fee) basis. They may charge fixed fees or fees based on a percentage of the candidate's starting salary (10%-25%). For a candidate with a £30,000 salary, the fee could range from £3,000 to £7,500. Rebates may be provided if the candidate leaves within a certain period (usually 0-12 weeks or up to 26 weeks).

Executive Search Consultancies

Executive Search Consultancies can work on a contingency or retained basis. Their fees tend to be higher (20%-30% of the starting salary) as they usually operate in the higher end of the market. For a £50,000 salary, fees can range from £10,000 to £15,000. Rebates or free replacement guarantees may be available in some cases.

Retained search consultancies charge 25%-33% of the starting salary, with payments divided into three stages:

  1. On appointment: one-third of the fee
  2. On shortlist presentation: one-third of the fee
  3. On offer, acceptance, and resignation: remaining fee

The first and second stages are usually non-refundable, if no one is appointed following interviews by the clients then the Search consultancy will re-visit the market and draw up a further shortlist of candidates.

For a £100,000 salary, the fee range is £25,000 to £33,000. Retained search consultancies usually work on roles with a minimum salary of £60,000 (£12,500 fee).

It is important to understand why there is an upfront cost involved with a retained search.  Unlike contingent recruitment the Consultancy is working solely for you, using their skills and experience to identify a long-list of potential candidates who meet your requirements.  This will involve a search including online research and networking.   If the Search Consultancy does not have an in-house research team, the initial research and telephone approaches will be carried out by an external researcher on a day rate around £700-£1,000.  Several days will be required.

These companies may negotiate for an ongoing relationship and volume deal.

Niche Specialist Consultancies

Niche Specialist Consultancies focus on specific industries, like IT or Financial Services, and operate on the same terms as Executive Search Consultancies, offering both contingent and retained services.

Cost of a Bad Hire

When considering costs it is important to acknowledge that the cost of a bad hire is estimated to be around 2.5 times annual salary of the individual so if we consider comparing a candidate on £100,000 per annum with a contingent recruitment fee of 25%, ie. £25,000 and a retained recruitment fee of 33%, ie.,  £33,000, it is worth investing in the recruitment process as this chart shows: