As your organization grows, hiring the right people becomes a mission-critical priority. However, numerous challenges may arise during the hiring process, particularly in terms of planning and forecasting.
Setting the right hiring budget and keeping stakeholders aligned around it is key to a sustainable and accountable talent acquisition process. And, in this post, we’ll share everything you need to know to:
- Properly set a recruitment budget
- Calculate your cost-per-hire
- Overcome common recruiting budgeting challenges
- Implement some essential recruitment budgeting best practices
But first, let’s cover the basics.
What is a recruitment budget? A quick overview
A recruitment budget (also known as a “talent acquisition budget”) is a financial document that defines how much a company spends (or expects to spend) on acquiring and onboarding new talent.
A recruitment budget doesn’t just include the costs of hiring a recruiter. It is also important to consider the costs of attracting and evaluating new candidates.
A complete recruitment budget should include:
- Recruiting tools
- Advertising on job boards
- Employer branding initiatives
- Recruiting events
- Background checks
- Onboarding costs (such as training or reallocation expenses)
Recruitment budgets are often defined on a quarterly or annual basis. But if you can plan your hiring for the next three years, we highly recommend doing so.
Should you calculate your cost-per-hire?
Aside from a general overview of how much your company spends on recruiting, it’s also important to calculate how much each new hire costs, on average. This metric is known as “cost-per-hire.”
Defining how much each new hire costs can help you:
- Detect outliers
- Recognize changing trends in talent acquisition costs, as early as possible
What’s the average recruitment budget?
Recruitment budgets vary widely, depending on a company’s:
- Talent acquisition channels
- Talent needs
Other factors that may affect your recruitment budget include:
- The median salaries for the roles you’re hiring
- Your hiring preferences (i.e.: will you hire remotely?)
- Whether you’ll hire an external recruiter or work with your in-house Talent team
According to stats compiled by Employmenthero, the average cost of hiring a new employee is in the $3,500 - $5,000 range.
The 4 most common recruitment budget management challenges
We’ve already agreed on what a recruitment budget is. Now, let’s cover some of the most common challenges teams face when defining their company’s recruiting budget.
These challenges include:
- Covering all your costs
- Aligning key stakeholders
- Accommodating unplanned requests while minimizing variance
- Keeping Finance, HR, and Talent on the same page
Let’s dive into each one.
Covering all your costs
It can be difficult to gather all the data you need to get a sense of your talent acquisition process and spending. This is especially the case if your talent acquisition efforts involve different departments collaborating on specific initiatives, and each has different priorities.
For instance, your employer branding budget may be hard to track - unless you establish a common cost-tracking process with marketing leadership. And some expenses may seem so minor and loosely connected to talent acquisition, that they may go unreported.
Aligning key stakeholders’ goals
Your recruitment budget should be aligned with senior leadership’s vision and goals. But it should also satisfy:
- Operational Talent demands
- Finance’s strategy
- HR’s priorities and processes
- The hiring manager's needs
The truth is that each stakeholder is solving very different things. So, aligning them around a realistic plan that serves the interests of all of them isn't an easy task, especially if you’re a Finance leader focused on protecting your cash flow.
Accommodating unplanned requests while minimizing variance
Employees leave, demand expands, and suddenly you have to make fast decisions to accommodate emergency hires.
As your company needs change, it’s not always possible to stick to your original budget. Budget variance is often inevitable. In these cases, the goal isn’t to be inflexible but to manage change in a strategically sound way. In short, it’s about minimizing variance and making sure that any changing needs are communicated through the right channels.
All in all, it’s not about sticking to the plan in a strict way, but about avoiding surprises.
Keeping Finance, HR, and Talent on the same page
It’s essential to keep a robust line of communication between all the teams involved. Any budgeting change should be clearly communicated to HR and Talent, so they don’t operate on outdated information.
But recruitment budgeting changes are often defined through hard-to-track communication channels, such as Slack or virtual meetings, and communicated through emails. So, it’s easy for this type of information to get lost, especially in large organizations with complex talent acquisition processes.
5 Recruitment budget management best practices
You can minimize recruitment budgeting challenges by implementing some best practices. We recommend:
- Tracking time-to-hire
- Aligning the Finance and Talent leadership
- Avoiding spreadsheets and adopting a headcount management platform
- Investing in proper headcount planning and org design
- Facilitate stakeholder communication and ensure governance
“Time-to-hire” is defined as the period of time between a candidate entering your recruiting pipeline and accepting your job offer. In short, time-to-hire measures how long it takes for a qualified candidate to move through your hiring pipeline.
Time-to-hire is one of the most commonly overlooked talent acquisition metrics, considering that:
- It generally takes 36 to 42 days to fill a position
- 18% of HR expenses are allocated towards recruitment efforts
Hiring is costly by itself. But if you add multiple screening and interview stages, time-to-hire increases even more. Consequently, your cost per hire will rise as well.
Unexpectedly high time-to-hire could result in significant budget variances. If your hiring process is taking longer than expected, you're spending more on job ads, recruiter fees, and candidate testing than you planned.
All in all, with longer time-to-hire come higher hiring costs. So tracking and optimizing time-to-hire is a must.
Collaboration between Finance and Talent is key during pre-planning
Finance and Talent leadership should work closely together in the early planning stages and throughout the hiring process. This is especially important to build partnerships where both sides understand each other's challenges.
They should discuss questions like:
- Should any teams be prioritized based on their revenue rates? Does revenue determine how teams are staffed?
- How does time-to-hire factor in?
- When will the hiring plan be delivered and executed?
- What does a fully burdened (or fully loaded) cost mean, and is it included?
Conversations like this can bring to each party's attention factors they may not have considered before.
Finance typically faces challenges when retrieving information from ATS or HRIT systems, like attrition rates and offer-to-start timelines. The process can be time-consuming and involve exporting multiple sets of data and manually reconciling them in spreadsheets. As a result, they may not be fully aware of relevant data.
Talent typically faces challenges when they have to wait on information and updates from hiring managers, then have to update this information in all the different systems and spreadsheets. If this data ever gets out of date, they need to make sure to notify Finance when it does get updated, so that Finance can run more accurate forecasts.
When Finance leaders understand TA operations, they can involve them sooner when there is a change that could impact headcount.
All in all, they can create a strategy that benefits both parties and avoid surprises along the way. Ultimately, that’s what effective headcount collaboration means, being truly aligned and having shared goals.
Avoid spreadsheets and use a headcount management platform
Communication is key for long-term recruitment budget management. But keeping stakeholders aligned can be nearly impossible if you’re managing your recruitment budget through spreadsheets that need to be manually updated.
However, you can address most recruiting budgeting challenges by implementing a headcount management solution.
This type of platform can help you:
- Connect HR and Talent platforms to create a single source of truth of headcount.
- Ensure the right workflows are followed to have true headcount governance.
- Automatically notify stakeholders when any strategic changes occur.
- Make sure stakeholders have access to the information they need, without accessing irrelevant data.
- Get valuable insights to guide future capital allocation decisions, hiring plans, and org design.
Invest in proper headcount planning and org design
Spend time and resources on assessing the headcount needs of each department and creating accurate hiring models. How many new hires will each department need to achieve its goals? What would be the ideal timing for this headcount expansion?
This process may imply constant back-and-forth communication among stakeholders and team leaders. However, it’s essential to make sure that all department needs are addressed. That way, you’ll establish a comprehensive and effective org design. In fact, a hybrid budgeting approach and a people management platform might be your greatest ally to streamline this process.
Overall, recruitment budgeting isn’t just about looking at past expenses and reverse-engineering your future spending. You can’t have accurate budgeting without accurate headcount planning and forecasting.
Ensure governance and facilitate stakeholder communication
Most cases of significant overspending or underspending aren’t due to untracked costs or hiring emergencies, but miscommunication and lack of effective processes.
In short, leaders make decisions that affect headcount planning and fail to properly notify other stakeholders. Therefore, they each make decisions based on different information.
To manage your recruitment budget and prepare for any unforeseen changes, make sure to facilitate communication between stakeholders by providing a single source of truth.
The right headcount management tool can make all the difference. It will ensure consistent adherence to effective processes by providing a unified source of data and decision-making.
Make headcount decisions, informed by fresh data
In this post, we covered some of the most common recruitment budgeting challenges fast-growing companies face. Plus, we shared some best practices that will help you simplify and streamline your budget management.
Luckily, you can overcome these challenges by using an effective headcount management platform that streamlines communication across all relevant departments. Here’s where TeamOhana comes in.
TeamOhana is a people planning software that provides a single source of truth with real-time data, so you can forecast headcount spending accurately.
With TeamOhana, you can plan your hiring budget based on:
- Collaborative work- Finance, HR, Talent leaders, and Hiring Managers can seamlessly work together in a single platform.
- Forecasts- integrate your ATS, HRIS, and hiring plan data so you can have a single source-of-truth to forecast headcount spending accurately.
- Analytics- Improve decision-making by tracking relevant KPIs.
- Case scenarios - Get real-time headcount insights, predictive analytics, and past business strategies to plan for future scenarios and adjust your budget accordingly.
Curious? Book a TeamOhana demo today →