Lynx Employment Services

Understanding ROI in Recruitment Agencies: A Financial Example

Using a recruitment agency offers tangible benefits that can often outweigh the associated costs. Here’s a financial example from a UK-based perspective to illustrate the potential return on investment (ROI).

Average Salary per Hire: £35,000

Internal Recruitment Costs: £5,000 per hire (advertising, HR time, etc.).

Time-to-Hire (Internal): 30 days

Time-to-Hire (Agency): 15 days

Cost of an Unfilled Position per Day: £500

Agency Fee: 15% of the annual salary per hire (£35,000 x 15% = £5,250 per hire).

Turnover Rate (Internal Hires): 20%

Turnover Rate (Agency Hires): 10%

1. Savings from Faster Time-to-Hire

  • Average Cost of an Unfilled Position per Day:
    According to UK-based research (e.g., Recruitment and Employment Confederation – REC), the cost of an unfilled position, depending on the role, can range from £300 to £800 per day. For this example, we use £500/day, which is realistic for a mid-level position.
  • Time Saved Using an Agency:
    Recruitment agencies typically reduce the time-to-hire by about 50%, especially when compared to internal processes. The average internal time-to-hire in the UK is 30 days, and agencies can often reduce this to 15 days.
  • Calculation:
    Time Saved per Hire Savings=15days×£500per day×10hires=£75,000

2. Savings from Reduced Turnover

  • Turnover Rate and Costs:
    The CIPD (Chartered Institute of Personnel and Development) estimates the cost of turnover, including recruitment, training, and lost productivity, at around 20%-30% of an employee’s annual salary. For simplicity, we use 20% here.
  • Internal Turnover Rate:
    Industry averages for turnover can vary, but for roles filled internally, a rate of 20% is reasonable.
  • Agency Turnover Rate:
    Recruitment agencies typically place higher-quality candidates with better alignment to company culture, reducing turnover rates by around 50%. For this example, we use a rate of 10%.
  • Calculation:
    Turnover Costs (Internal)=20%×£35,000×10hires=£70,000
    Turnover Costs (Agency)=10%×£35,000×10hires=£35,000
  • Savings=£70,000−£35,000=£35,000

3. Total Financial Benefits

  • Time-to-Hire Savings: £75,000
  • Turnover Savings: £35,000
  • Total Benefits: £110,000

4. Recruitment Costs

  • Agency Fees:
    The standard recruitment agency fee in the UK is 15-20% of the candidate’s annual salary, depending on the role. For this calculation, we use 15%:
    Fee per Hire=£35,000×15%=£5,250
  • Total Fees=£5,250×10hires=£52,500

5. ROI Calculation

ROI = ((Total Benefits – Recruitment Costs) divided by recruiting cost) then multiply by 100

ROI = (£110,000−£52,500) = £57,500/£52,500 = 1.095 * 100 = ROI 109.5%


Sources for Figures

  1. Cost of Unfilled Position: Recruitment and Employment Confederation (REC).
  2. Turnover Cost Estimates: CIPD (Chartered Institute of Personnel and Development).
  3. Agency Fees: Typical industry rates in the UK, 15%-20% of annual salary.
  4. Time-to-Hire Reduction: Data from recruitment case studies and industry reports.

Conclusion

Using a recruitment agency can yield significant financial benefits, including faster hiring times, reduced turnover rates, and access to higher-quality candidates. In this example, the company achieved an ROI of 109.5%, proving that the investment in recruitment services pays off substantially.

Would you like to explore how partnering with a recruitment agency can boost your ROI? Contact us today to find out more!

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