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
- Cost of Unfilled Position: Recruitment and Employment Confederation (REC).
- Turnover Cost Estimates: CIPD (Chartered Institute of Personnel and Development).
- Agency Fees: Typical industry rates in the UK, 15%-20% of annual salary.
- 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!