Lower the Cost of Hiring an Employee: In-house vs. Recruitment Agency Hiring Ratio?

Recruiting for different positions requires different strategies and different amounts of recruitment agency involvement. However, answering the question: "Whether to undertake solely in-house recruitment or to entirely outsource these efforts in the form of recruitment agencies?" isn't such an easy task.

Most importantly, we believe that questions shouldn't even be about one or the other, but more about the ratio in which you should go for each recruitment method. For that reason, we wrote a blog that will help you understand when it's better to turn to your ATS for hiring and when to hire an agency instead - to lower the cost of hiring an employee.

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Therefore, if you are interested in finding out what differentiates in-house hiring from agency hiring and which cost factors separate one from another, keep reading the following paragraphs!

ATS vs. Recruitment Agency

Before implementing an ATS or hiring a recruitment agency to handle your hirings, it is essential to estimate the returns you will get on your investments. For that reason, we created some estimations to clearly understand what goes into using each method for your hiring.

When implementing an ATS solution, here are some elements you should take into account when estimating your ROI.

1. Current hiring cost

First of all, it is crucial to establish the number of your hirings in order to calculate the cost per hire and ultimately total current hiring costs. You will do so by multiplying your current number of employees by your average turnover rate. Afterward, you should calculate your cost per hire by adding total internal costs to the total external costs of hiring and divide the sum by the total number of hires.

Based on previous research, the average cost per hire across industries equals 4000$. However, many factors impact the cost, so it is always a better idea to calculate the cost based on your own company's metrics.

Now that you have an average cost of your hiring in front of you, you will quickly see that you will increase your ROI by reducing or even eliminating some internal or external fees.

2. The cost of the ATS license

As an essential aspect of internal costs, it is definitely important to consider the cost of implementing an ATS solution. Even though prices obviously vary depending on your hiring needs and your company's size, let's assume that your ATS's total yearly price is 1500$, which makes this a monthly cost of 125$.

However, you can also make an exact calculation of your ATS fees depending on your company's size and hiring needs.

3. Agency costs

First, we need to understand the model they use for charging their services to calculate your agency fees. Most of the recruitment agencies work to find talent, and if their talent gets hired, they receive a commission of 15-20% of the candidates' first annual salary. However, this cost can go up to 30% for hard-to-fill positions. Obviously, your company's annual cost of agency recruitment will vary depending on your hiring needs, the industry your employees are working in, and the exact commission you agree upon with the agency.

Despite this varying factor, we were able to estimate average recruiting fees across industries based on a Top Echelon report, and we reached the cost of around 18,500$ per year.

The key lies in identifying your needs

Based on these estimations, it is clear to see that if you decide to implement an ATS solution and solely rely on it, the costs of your recruitment efforts will decrease. However, just like with any other situation - the math is not so simple. Even though by reading our rough estimations, you can save up to 17,000 $ of expenses yearly by implementing an ATS instead of hiring a recruitment agency, the calculations do not end here.

While in some situations it's better to rely on in-house recruiting and can save you a lot of money, there are also situations in which altogether avoiding recruitment agency services could cost you more in the long run. Let's say you need to hire someone at your development department as soon as possible to help your team finish up a project. In that case making sure that hiring is performed fast and efficiently, even though it may cost extra money, is the main priority. For that situation you might go for a recruitment agency since a cultural fit isn't at the top of your priority list and you need a capable candidate fast. In a different situation where you wish to hire a long-term employee who will fit in well within the team, and there is no such rush in finding that candidate - it could be more beneficial to turn to your in-house hiring department which uses a modern ATS solution.

Therefore, finding the right combination of the right timing for hiring an agency vs. when to have your recruiters use an ATS for hiring is the key to success. Besides the direct costs associated with implementing an ATS or hiring a recruitment agency, many other factors affect your ROI.

What to keep in mind?

Hiring strictly in-house has its perks and disadvantages. Having your own team that sources, evaluates, interviews, and ultimately hires new employees can be highly beneficial for the quality of hire due to a great understanding of the company's needs. This way of hiring also means significant savings. However, having a dedicated HR department, first of all means a lot more responsibilities than "just" hiring new employees. And, as we all know, hiring takes time!

So, while you may think that all your worries are put to rest with an ATS, be careful. Occasionally, it is pretty beneficial to outsource recruiters who can perform sometimes tiresome tasks of sourcing and screening first-round candidates. Even though this will reflect on the hiring cost, ultimately, the combination of implementing new technologies to your HR department and a good collaboration with agencies can go a long way.

Simply by leveraging a different set of valuable assets that agencies possess: such as a rich candidate pool, their complete focus to finding the right person, and great connections - and combining their efforts with a modern approach to recruitment, which includes a recruitment tool, you will maximize your success. Suppose we add the fact that with a modern recruitment software solution, you can easily establish good communication and collaboration channels that will help your HR department work alongside external recruiters. In that case, you will set yourself for great success.

Are you ready to start lowering the cost of hiring a new employee?

If your company is still not using an ATS solution for the benefit of lowering your recruitment costs, start our free trial and see how the tool can help you navigate through your hiring demand.