How to Reduce Hiring Costs for Your Business

Finding, hiring, and keeping the right employees may be the most important investment your company makes. Employees are the cornerstone of every business function, process, and result. They’re the force that will take you from point A to point B — to point Z. They make or break your organization.

But success hinges on hiring effectively.

However, the cost of hiring ineffectively carries an equally heavy toll, especially on the teams doing more with less and the recruiters tasked with replacing bad hires. The Great Resignation (2021-2022) left 98% of HR professionals feeling burnt out and dreading work. Meanwhile, 73% felt they didn’t have the tools to do their jobs well — compounding the stress of their day-to-day jobs. 

These challenges are leaving HR professionals feeling tired. Which inevitably leads to ineffective hiring. The cost of bad hires quickly adds up, whether from unproductive employees, quick turnover, or all of the above. When HR needs to fill the same roles again and again while sourcing new ones, their burnout blazes. However, with the right technology, you can reduce hiring costs and promote a healthy work-life balance for your recruitment team.  In this guide, we’ll show you how.

What are hiring costs?

Hiring costs include anything directly or indirectly related to finding and hiring a new team member, from the first outreach to the onboarding process. Estimates show that 30-40% of hiring costs are measurable hard costs such as recruitment software fees, drug testing, and job fair fees. Around 60% are soft costs, things that may not have a set price tag, such as productivity loss due to vacant roles and having to spend time training new employees.

Here’s an example. 

Say you’re hiring a customer success representative with a $50,000/year salary.

• On average, U.S. companies spend $4,700 per hire on fixed costs, such as advertising fees and background checks.
• External hiring agencies typically require 20-25% of the new hire’s first-year salary ($12,500 for this example).
• The cost of onboarding a new employee averages around $1,400.
• For a customer success role, you will also likely need to provide a laptop, software licenses, and possibly a phone. All of these could easily equal $2,000 or more.
• Soft costs (like recruiters’ time spent screening and interviewing) quickly add to the total, leading to some roles to cost, in sum, 3-4x a position’s salary ($195,300 in this instance).

Here is some more info on what goes into these different cost categories:

Hard costs

Hiring costs include tangible recruiting fees, such as:

• Advertising and marketing expenses, like job fair ads, newspaper ads, or online job board postings
• Headhunter and consultancy fees
• Background checks, drug tests, and credit checks
• Pre-hire assessments 
• Recruitment software, such as an applicant tracking system (ATS)
• Travel costs for in-person interviews and recruiter accommodations

There are also other fixed hiring costs, such as:

• Work permit fees and licensure related to legal and trade compliance
• Employee referral fees, bonuses, or hiring premiums
• Health screenings or physical examinations
• Relocation fees and reimbursements
• Technology and equipment costs, such as laptops, home office expenditures, and company vehicles

Finally, there are onboarding costs that include:

• Training and organizational development
• Materials such as training manuals, employee handbooks, and reference materials
• Legal fees for contracts, non-disclosure agreements (NDAs) and other agreements
• Webinars, seminars, and boot camps 
• Travel for special training events

Soft costs

Soft costs are less easily quantifiable, but they still make up a considerable sum of hiring costs. These include things like: 

• Time spent handling hiring activities, such as reviewing resumes or conducting interviews
• The mental burden of overseeing multiple open roles
• The opportunity cost and productivity loss of vacant roles
• The morale blow to employees tasked to do more with less

The impact of soft costs can’t be overstated. Productivity loss, altered team dynamics, and lost institutional knowledge can be felt across the organization, and these soft costs, while evident, are often never adequately measured. 

How to calculate hiring costs

Calculating hiring costs, often expressed as cost per hire (CPH), requires accurately understanding all of the expenses — to the best of your knowledge — that come into play throughout the hiring process. The important thing is that you use metrics you can easily track so that you have an accurate way to measure improvements in your CPH. Once you have a total of the hiring costs for your organization for all employees for a set period, you can calculate the cost per hire (CPH.) 

The formula is as follows: Hiring cost / number of hires = cost per hire (CPH)

For example, if you spent $150,000 in six months on 10 hires, your average CPH would be 

150,00 divided by 10, which equals $15,000 per hire for those six months. This number is useful for budgeting, setting expectations, and creating benchmarks. It can also help you avoid surprises during strategic workforce planning.

What is the cost of a bad hire?

A bad hire is any new hire that results in a poor fit for either your organization or the employee and their new role. This can result in ongoing conflict, poor performance, and often termination — all things that magnify the total cost of hiring. 

It’s often easy to know if a hire was bad when their behavior affects those around them through lower productivity or a decline in the company culture. But even if you don’t realize a bad hire is one until they walk out the door, there’s a price to be paid for the mismatch. 

The exact cost of these hires varies by position, but estimates pin the cost of a bad hire at $17,000. This isn’t a small amount, and if you find yourself with a high employee churn rate, this number can crush your budget.

What else goes into the cost of a bad hire?

• Direct financial costs, including recruiting, training, and the salary and benefits paid out while the employee is with your company (this alone can total tens of thousands of dollars)
• Productivity loss, either from the new hire leaving or the bad hire negatively impacting those around them
• Negative impacts on culture, such as a reduction in team morale, uncertainty, and possibly even additional attrition due to a disrupted and uncomfortable work environment
• Replacement costs to bring on new hires for the original employee and anyone else who left during the fallout 
• Sales and revenue opportunity costs, which occur when a bad hire’s performance negatively affects customers’ experiences or the company’s reputation 
• Legal or compliance costs, such as the fines incurred from regulatory violations or fees

The cost of a poor fit can really add up, which means your organization can drastically reduce employee acquisition costs by finding and hiring the right talent from the start!

5 proven ways to reduce hiring costs for your business

Slashing hiring expenses requires focused action. It’s not possible without commitment from your hiring and management teams. However, once aligned, organizations have multiple avenues to cut costs throughout the hiring process. 

1. Target the right applicants with job advertisements

Talent is the biggest investment your organization can make. And, as with any investment, you want the highest ROI possible. In recruitment, this means targeting and hiring the right applicants.

One way you can do that is through job postings and job advertisements that appeal to the right candidates by clearly explaining the roles and responsibilities of the job. You’ll also want to be transparent about which qualifications are must-haves and which are nice-to-haves. (If you’re open to someone without a degree, for example, encourage those without them to apply!) Avoid buzzwords like “all-star” and include tangible responsibilities to make your job ad stand out. 

It can also help to include what the applicant will get from the job by including a salary range and any opportunities for future growth, training, or development at the company. By highlighting the right motivating factors in your ads, you’ll likely see a better fit from applicants who, in turn, make it further in the hiring process.

You might also consider targeting your ideal employees with ads on the channels they most likely frequent. This can be an industry-targeted job board, such as MedReps for medical sales professionals or SchoolSpring for educators. Posting to these niche sites, in addition to more general boards like Indeed or Monster, can ensure your job listing is seen by more of the right candidates. Note: The cost for many of these advertising sites ranges from $250 per job listing to $500 or more for a monthly subscription. 

2. Use pre-employment screening tools and assessments

For many roles, it’s not unlikely to receive dozens, if not hundreds, of applications. Now, imagine having the power to immediately narrow down those candidates to a fraction of that, focusing solely on best-fit talent.

With data-driven, pre-hire assessments like Wonderlic, you can immediately surface the top 10% of candidates and reduce candidate screening time by up to 75% by eliminating hours of unnecessary resume screening, phone calls, interview scheduling, sending emails, and more. 

Now, doesn’t that sound like a breath of fresh air?

Pre-hire assessments can help you: 

• Improve candidate screening. Wonderlic’s pre-hire assessment measures cognitive ability, personality, and motivation relative to a specific role, giving a single score for candidates. Multi-measure assessments like Wonderlic can be far more effective than simple skills-based tests — which don’t measure overall fit or team dynamics — or other tests that don’t tell you whether a candidate truly wants the job. With this score, recruiters can immediately surface the top 10% of candidates.
  
• Enhance job matching. Some candidates may not apply for the best job for their skills or aptitudes, but data-based hiring decisions ensure these candidates get placed into the best-fit roles. This helps companies make good use of talent pipelines and ensures candidates are set up for a fulfilling and positive employee experience.
  
• Reduce bias. Humans form decisions based on emotions, prior experiences, limited knowledge, and conscious and unconscious beliefs about the world around them. Often, this results in making gut decisions that result in lackluster hires and, worse, bias. Data-driven hiring tools mitigate human bias and present candidates in a more objective light by revealing their fit across multiple dimensions — regardless of their demographics.
  
• Fine-tune interviewing and onboarding. Data helps measure and track important metrics, such as how long it takes to return candidate calls, the interview questions most likely to result in a good hire, and candidate sources that return the best results. With these areas for improvement identified, hiring teams can focus on what works best and tweak their strategies to produce better hires. 

How can Wonderlic Help?

Overall, pre-hire assessments like Wonderlic Select can be far more effective than simple, one-dimensional skills tests — which don’t measure overall fit or team dynamics — or other pre-hiring assessments that don’t tell you whether a candidate truly wants the job. Multi-measure assessments evaluate candidates on three different data-driven levels — cognitive ability, motivation, and personality — to measure whether someone is truly a good fit. They can screen out those who may look good on paper but don’t have the right personality, learnability, or internal drivers. You can then pass candidates with the highest potential on to the next recruitment phase, which reduces the time, money, and effort spent on poor-fit candidates. 

3. Go high tech

While the prevalence of applicant tracking systems (ATS) created a new status quo for recruiters, the maturity of AI has brought about new opportunities to sharpen and rethink recruiting. Among HR leaders, 38% have piloted, plan to use, or already use generative AI. 

However, it’s not just about helping recruiters do more. A recent workplace learning report shows that employees want to boost their tech IQ, too. Giving employees AI tools can empower them to take the initiative and do more learning and upskilling on their own. Companies that provide these tools and AI upskilling may see productivity and retention increase without much additional need for costly hands-on workshops or training. 

4. Use referral programs

While referral bonuses may seem like an unnecessary cost, the payoff could significantly reduce your overall hiring costs, as referrals are often cheaper than a headhunter or traditional recruiter. You won’t have to spend as much on ad boards or career fairs, as candidates get sent directly to you. 

Also, employees who refer their friends have identified candidates that may seamlessly fit into the existing workplace culture. This can lead to lower turnover and reduced spending on employee retention. Referral programs also skip many of the steps found in traditional hiring, resulting in a faster, more efficient hiring process. 

5. Improve company branding

Your reputation matters. Among job seekers, 82% look at the company’s reputation before they apply. Out of the companies that didn’t have issues hiring over the past 12 months, 48% of them credit a strong brand for at least some of their huge success.

When you have a good reputation as an employer, employees seek you out directly, reducing the work needed to source the right candidates. It also makes your job offers more attractive, and new hires may accept less expensive benefit packages to work for a prestigious company. 

Boosting your brand reputation can be especially valuable in an employee-driven market, where jobs are plentiful and candidates call the shots. When vying for the best talent against competitors in your field, the final decision to accept your offer may come down to what a candidate has heard about you on social media or business review sites.

How to measure the effectiveness of better hiring practices

Using these strategies to create affordable hiring practices can bring immediate benefits to your organization, both in terms of freeing up more budget and creating a healthier workplace. While only some of these benefits can be measured, it can be helpful to track as many metrics as possible to know you’re on the right track. You can then also tie back actual cost savings into future budgetary decisions, such as using money saved on new-hire training to upskill your existing teams. 

The KPIs most likely to help you reduce your hiring costs include:

Cost per hire (CPH): The average expenses for hiring each candidate. Costs should be balanced with the quality of the hiring process.

Time to hire: The average time from posting a job to a candidate accepting an offer. Shorter recruitment processes may cost less, but it’s also important you take the time to hire the right person. 

Quality of hire: How effective or productive an employee is. This measurement uses qualitative and quantitative key performance indicators (KPIs), such as productivity, customer service satisfaction ratings, and manager feedback, to create a standardized scale or score. 

Candidate experience: The experience a candidate has during the recruitment process. Evaluating the candidate experience can reveal issues in the hiring process, along with opportunities to improve the candidate experience. 

Offer acceptance rate: This KPI measures the percentage of candidates who say “yes” or “no” to an offer. Low rates may signal a problem with your recruitment processes, candidate pool, or compensation packages. 

Turnover rate: The percentage of employees who leave after a certain time period, usually six months to a year. Higher rates may signal a bad match or larger systemic organizational issues. 

How Wonderlic Select helps you slash hiring costs

Wonderlic Select is a multi-measure pre-hire assessment that uses over one hundred years of leading industrial-organizational (I/O) psychology and science to put highly predictive data directly into recruiters’ hands. With Wonderlic, your company can scale its hiring processes and immediately focus on top candidates. 

Wonderlic measures three dimensions of candidate fit:

• Cognitive ability: Can they do the job?
• Personality: How will they do the job?
• Motivation: Will they want to do the job? 

Combined, these factors offer highly predictive insights into employee fit and performance. Our TrueMatch technology further refines these insights by comparing the requirements for millions of roles to a candidate profile and prioritizing the attributes most necessary for success. 

A candidate’s Wonderlic score tells recruiters how likely a candidate is to excel in the chosen role and stay for a sustained period of time. Their test results may also reveal if another role is a better fit so talented candidates who fit well into the company culture won’t fall through the cracks if they apply for the wrong role for their abilities and interests. 

Recruiters can see high-level scores for each candidate and then drill down into individual elements of that score to see why they scored a certain way. This gives three-dimensional insights that far surpass resumes and interviews, helping hiring managers contextualize information and gain objective data for a fair and fruitful decision. 

Get a demo of Wonderlic

Ready to take a more data-driven approach to recruitment to reduce your overall hiring costs? Wonderlic takes the guesswork out of hiring with a candidate assessment designed to find the perfect match for your open roles. Schedule a demo today.

Written by:

Jessica Haig

Hi, I’m Jessica Haig, the Director of Applied Science and Culture at Wonderlic. I’ve dedicated over a decade to talent assessment, focusing on helping organizations find and retain the best talent. I lead teams in implementing and supporting best practices, consulting on employee selection and development, and developing innovative assessment tools to enhance organizational performance and culture. Outside of work, I love sailing, bringing the same passion and precision to the open waters as I do to my work.