The Real Cost of Using a Bad Recruitment Agency

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As you probably know, that most recruitment agencies are working with a placement fee. Cooperation with them is free and you pay after you hire somebody from them. But have you ever thought about how much money your company spends prescreening and interviewing the wrong candidates that agencies are sending you?

Employers often believe that when they use a recruitment agency, they will instantly get more candidates and it will save them money and time. However, have you ever analyzed the true costs of recruitment with an agency?

What’s Your Time Worth?

Recruitment takes time. And the administration involved in recruitment can cost a huge amount of time and money, and it doesn’t matter if you have a small or large organization.

Everything will start with the time that you spend in meetings, writing job descriptions for new positions, posting the job, managing applications from candidates, doing pre-screenings, sending feedback to candidates, answering questions, tracking candidates in the process, inviting candidates for an interview, making offers, preparing contracts, rejecting candidates, etc. You will spend hours doing that. But have you ever tracked the time that you spend in those activities and how much it costs your company?

Cost of Hire

You can choose two ways to hire that person:

Hiring With an In-house Recruiter or Using the Recruitment Agency.

And in this example the company XY (from manufacturing/engineering field), they are looking for “CAD Designer” with a salary, for example, of 45K CZK/month. They have 12 similar openings per year.

Example of costs of interviewers:
- Recruiter — 11$ per hour
- Senior Design Engineer — 13$ per hour
- Design Leader — 17$ per hour

Note: Salary info and all these numbers are from “Salary survey 2015 — Czech Republic” of one big recruitment agency. Currency conversation rate was 1 USD for 25 CZK.

Hiring With an In-house Recruiter

Keep in mind that, even if you are going to use the agencies, your recruitment team is still going to do the same job, hiring for all open positions, working on the company brand, taking care of referrals, etc. And they will still need to do a prescreening of the candidates you get from sources other than agencies. So I am not going to mention any special/extra costs, because these can vary based on the company hiring process, etc.

Your time and costs (example):

- Writing the job description
- Advertising (LinkedIn, Job boards…)
- CV Databases
- Company branding (flyers, adverts etc.)
- LinkedIn premium account

Interview process (example):

- Pre-selecting of candidates
- Pre-screening of candidates
- Submitting profiles to hiring manager/team
- First round of interviews
- Second round of interviews
- Offers, rejections
- Communication with team and candidates

Using the Recruitment Agency

If you are going to use the agency, you will get more candidates in the pipeline and you also decrease the time that you need for filling the open position. But you will still need to create the job description, post the role on LinkedIn, and do the same things as if you are hiring people yourself. But when you are using an agency, there are some other costs, like your time and the time of your team, that you need to spend with the agency and with their candidates on interviews; plus, there is a success fee.

Cost of Using a Bad Agency

If you are using an agency that is just sending lots of CVs every week, that could look pretty great in statistics at the end of the year, but what are the real costs behind that?

Example: You are a company that every month is opening one position with the same profile, so it will be 12 people per year. And you are using two agencies.

Agency A — An agency where recruiters have a quota to present at least five profiles per day to their clients. If you are one of their clients, you will get somewhere around 15 profiles per month. So it’s 180 per year.

Agency B — An agency where recruiters are focusing on quality, not quantity. So you will get two to three people per month. So it’s 36 profiles per year.

Costs

Agency A and B — Your time for preselection + Time for prescreening + Time for interviews + Time for Rejections + Time for communicating with agencies and candidates after the interview.

Agency fee — The fee on placement is based on starting salary; this can vary from 15% to 30% for standard contingency recruitment. In Czech Republic, the fee is somewhere between 1.5–3 times a candidate’s monthly salary.

Cooperation with Agency A — Example

This example is showing what cooperation with Agency A could look like over one year.

If you got 180 profiles, the recruiter will check all of them and share the feedback with agency.
- Recruiter will do the prescreening with 120 of them.
- 80 of them will go to the hiring manager for feedback.
- 45 of them will be invited by recruiter for an onsite interview.
- 45 will be given a first round interview.
- 15 interviews will take place in the second round.
- Six offers will be made.

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It’s also really important to keep in mind that a bad hire will almost always cost your company more than hiring the right candidate, so don’t fill the role with just anyone.

Cooperation with Agency B — Example

Good recruitment agencies will present the top candidates from their candidate pools and these candidates are going to match your specific needs. This process saves you time and money.

This example is showing what cooperation with Agency B could look like over one year.

If you got 36 profiles, the recruiter will check all of them and share the feedback with the agency.
- The recruiter will do the prescreening with 30 of them.
- 28 of them will go to the hiring manager for feedback.
- 25 of them will be invited by recruiter for an onsite interview.
- 25 will be invited for first round interviews.
- 12 interviews will be held in the second round.
- Six offers will be made.

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The difference between agency A and B is 2360 USD. That may not look like lots of money to large companies, but if you are using six agencies and four of them are working like Agency A, it’s 9440 USD plus the agency fees.

You also need to think about the time that you and your team will save. We are talking in this example about 150 hours, thats the difference between cooperation with agency A and B! And with four “A” agencies your team is going to lose around 600 hours per year.

I know that some readers of this article are going to challenge these examples, but keep in mind that these are just examples that I created based on my discussions with other colleagues from manufacturing companies when we’ve talked about how the agencies are working these days. And it is only an example, because every company has different hiring processes.

You can try to do your recruitment cost analysis and maybe you will be surprised with the amount that you are spending on “free” agency cooperation.

One classification for the cost on recruitment that you can use for your analysis was made by Jean-Yves Le Louarn in 2008. (Source: Cost/Benefit Analysis by Nicoleta Valentina)

The cost on recruitment sources

The method includes the cost of advertising (in magazines, newspapers, and on the Internet); the agency’s cost (honorary paid to the agency); the cost of campus recruitment; the cost for the persons that recommend candidates; the cost of associations (subscriptions to professional associations). The indicators of recruitment costs are presented in Table below.

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Pre-selection costs

The cost analysis of CVs, the time cost of acceptance/rejection of
CVs, the cost of sending letters/messages of rejection. The indicators of pre-selection costs are presented in Table below.

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Selection costs

Choosing the best candidates, detained after pre-selection, using the following techniques: interviews, assessment centers, medical examinations, reference checks (Table below).

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In-House Recruitment Solution vs Recruitment Agency

In-house recruiters provide huge value to an employer, in the areas of salary guidance, market intelligence, feedback from candidates and from the market, etc.. They are helping to build the brand of the company and more.

Agency recruiters always have more resources, like various job boards, and they build different networks. Great headhunters have extensive networks in niche markets and also have the information about new companies coming to the market. If you choose your headhunters well, you will get inside information about what is going on in the market. Good headhunters could thus be a very good asset for every company.

There are various differences between in-house recruiters and agency recruiters, but that’s for another article. What I am trying to say is that using a recruitment agency is not a bad thing. You just have to choose your recruitment partners wisely and invest the time to speak with them, before you select them and allow them to enter into your company.

Agencies should be your partner in recruitment. Their goal is to save you time and find the right person. And also they need to be a trustful partner that is sharing with you inside information and feedback from the market. So when you are evaluating cooperation with agencies, don’t look only at the number of profiles that they send you during the year, but think about how much money and time they cost you. Many companies are doing statistics (of course with cool Excel graphs) and managers, when they see that Agency A sent them 100 candidates and the second agency B sent only 10 during the year, they will stop cooperating with the second agency B, because they only see the number of candidates in the highest bar and not the costs and time behind these numbers.

At the end of the year when you are doing statistics about how your agencies are effective, don’t compare them only by how many profiles they sent you. Try to think also about how much time and money they cost you and your team, because hiring new people for your company is a job for the whole hiring team.

Finding good candidates in any market takes skill, experience, time and a good recruiter. And if you are working in the recruitment field, you know that finding a good candidate is always hard in any market, whether it is a good or bad economy situation. But the time that you spend on choosing the right recruitment partner is a good investment, because you will save time and money during the cooperation.

Keep in mind that even though most recruitment agencies are still working for free (they get only success fee), they will still cost your company money and time, so choose wisely the new agency that will help you build a successful company.

Written by

#Recruiter, Author of bestseller “Full Stack Recruiter", Dream Chaser, Creator of impossible, #BlackBerry fan (probably the only one). Author of sourcing.games.

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