Back to News & InsightsThe True Costs of Internal Recruitment vs. Using a Recruitment Agency

The True Costs of Internal Recruitment vs. Using a Recruitment Agency

Recruiting new employees is a crucial aspect of building a successful team. However, the recruitment process can be complex, time-consuming, and costly. Many businesses struggle to determine the most cost-effective approach to recruitment - should they handle it in-house or use a recruitment agency? This article will explore the costs associated with internal recruitment versus using a recruitment agency, providing valuable insights to help businesses make informed decisions.

Understanding Internal Recruitment Costs
When considering internal recruitment, assessing the various expenses involved is important. These costs go beyond the direct expenses associated with hiring and onboarding. Let's delve into the key factors that contribute to the actual costs of internal recruitment:

1. Hiring Expenses

Internal recruitment entails expenditures related to the recruitment process itself. This includes advertising job vacancies, utilising job boards, conducting background checks, and screening candidates. These costs can quickly increase, especially if the organisation has multiple positions. Additionally, internal recruitment requires dedicated HR personnel or teams whose salaries and benefits must be accounted for.

According to the 2023 HR Industry Benchmark Report from ELMO Software, the average cost to hire a new employee has risen to $8,000, with 45% of businesses surveyed stating that the recruitment budget has increased as a result. 

2. Time and Productivity Loss

One of the hidden costs of internal recruitment is the significant time it takes to fill a position. In Australia, in 2023, the average time to fill a vacant position is around 20 days. The recruitment process involves various stages, such as posting job ads, reviewing resumes, conducting interviews, and negotiating job offers. Each step takes time; during this period, the position remains vacant, resulting in a loss of productivity.
Furthermore, internal recruitment often involves existing employees, such as managers and team members, in the screening and interviewing process. This diverts their attention from their primary responsibilities, impacting their productivity and potentially leading to additional costs for temporary staff or overtime payments.

3. Skill and Resource Limitations

Internal recruitment may face limitations in reaching a diverse pool of candidates. Organisations may lack the extensive networks and industry contacts that recruitment agencies possess. This can hinder finding the best talent, particularly for niche or hard-to-fill roles. Internal recruitment also requires investing in resources such as recruitment software, job boards, and applicant tracking systems, which can be costly.
In 2022, businesses reported that their biggest challenges were a skills shortage in the market. This year, the focus has shifted to attracting suitable candidates, with 30% of companies stating that demand versus supply was their biggest recruitment challenge.

4. Risk of Hiring Mistakes

One of the most significant risks of internal recruitment is the potential for hiring mistakes. Making the wrong hire can have severe consequences for a business, including decreased productivity, increased turnover, and damage to the employer's brand. The costs associated with a bad hire extend beyond the initial recruitment expenses, encompassing training, onboarding, and potential severance packages.

5. Mounting Costs due to Delays

Errors and delays can result in the hiring process restarting repeatedly as new candidates must be identified. The recruitment costs are compounded, running into thousands of dollars before a final offer has been made. The candidate search and interview process can tie up internal resources for weeks, running into months, causing productivity costs elsewhere. This can also affect team morale as understaffed or overworked departments waiting for support face difficult working circumstances for extended periods.

The Advantages of Using a Recruitment Agency
Now, let's explore the benefits of using a recruitment agency and how they can mitigate the costs and challenges associated with internal recruitment. 

1. Broad Reach and Access to Talent Pools
Recruitment agencies have access to extensive networks and talent pools, allowing them to reach a wider range of candidates. They utilise various channels, including job boards, social media platforms, and industry connections, to attract top talent. This broad reach increases the likelihood of finding the best-fit candidates for your organisation, especially for specialised roles or positions requiring specific skills. Agencies like Evolve have developed databases of high-quality candidates and contractors with the right skills for the industry and, in most cases, can identify candidates based on their skills and experience, as well as an internal hiring team.

2. Expertise and Efficiency
Recruitment agencies specialise in finding and selecting candidates, employing experienced recruiters who are well-versed in hiring. Specialised recruitment agencies like Evolve have a deep understanding of their industries, the requirements of the roles within that industry, and previous experience in filling similar roles with high-quality candidates or contractors. This expertise streamlines the recruitment process, reducing the time and effort required from internal teams. By leveraging their experience and resources, recruitment agencies can expedite hiring and minimise productivity loss.

3. Candidate Screening and Skill Assessment
Recruitment agencies excel in candidate screening and skill assessment. They have robust processes to thoroughly evaluate candidates, including conducting interviews, checking references, and administering assessments. This rigorous screening ensures that only the most qualified candidates are presented to the hiring organisation, reducing the risk of poor hiring decisions.

4. Cost-Effectiveness
Contrary to popular belief, using a recruitment agency can be a cost-effective solution. While there are fees associated with agency recruitment, businesses must consider the overall value and return on investment. The time saved by utilising a recruitment agency and the higher likelihood of finding the right candidate can result in significant cost savings in the long run. Additionally, recruitment agencies often offer guarantees or replacement policies if a hired candidate does not work out, providing added financial security. The cost of hire is also much easier to measure and audit with an agency, as a business is not using as many internal HR and support resources to manage the hiring process.

5. Ongoing candidate and contractor support
Where an organisation is looking to staff for a specific project, contract staffing recruitment comes into its own. An agency can manage sourcing and presenting candidates, as well as ongoing management of contractors, including payroll, HR and support. This releases a company's internal HR team to focus on permanent staff, continual process improvement and other duties elsewhere, which can be a significant cost saving in hours. 

Making the Right Choice
When deciding between internal recruitment and using a recruitment agency, it's crucial to consider your organisation's specific needs and resources. While internal recruitment allows for greater control and familiarity with the company culture, it may come with higher costs and limitations. On the other hand, recruitment agencies offer expertise, efficiency, and access to a broader talent pool, which can result in more successful hires and cost savings.
In conclusion, the actual costs of internal recruitment versus using a recruitment agency extend beyond direct expenses. Internal recruitment incurs costs related to hiring, time loss, skill limitations, and the risk of making hiring mistakes. Recruitment agencies offer advantages such as broad reach, expertise, efficiency, and cost-effectiveness. 
Businesses must carefully weigh these factors to make an informed decision and adopt a recruitment strategy that aligns with their objectives and resources.