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Planning your recruitment budget for 2023: top tips from Workable’s CFO

Being in finance, you, of course, know how to calculate budgets. But when it comes to recruitment, do you have a deeper understanding of planning your recruitment budget – especially with your higher-ups leaning on you to make smart fiscal decisions? We sat down with Workable's CFO who shares his extensive firsthand wisdom on the topic.

Keith MacKenzie
Keith MacKenzie

Passionate about human resources, employment, and business management, and an expert at sharing that expertise.

planning your recruitment budget for 2020

With your higher-ups expecting you to fine-tune the money going into and out of the system – the first thing to do is look at what you’ve done in previous budgets, preferably a time prior to the pandemic for more accurate specs.

Workable CFO Craig DiForte has been through this himself numerous times. He gets straight to the point: “There are two main things you want to look at,” he says. “Cost per hire and time to hire.”

Craig explains that you must break those down into manageable and measurable chunks, and identify the areas where you can optimize to get more bang for your buck.

“You had a budget that said that you were going to spend this much, and that HR was going to cost this much. What really happened? That’s where you need to look deeper.”

“You had a budget that said that you were going to spend this much, and that HR was going to cost this much. What really happened? That’s where you need to look deeper.”

1. Cost per hire

“The first thing to look at is your cost per hire for the past year,” Craig says. Cost per hire is the average cost invested in hiring X people in a time period – it’s easy to measure on the surface. But the solution isn’t as simple as saying, ‘Let’s cut back on our cost per hire.’ You need to drill down to specifics.

First, before planning your recruitment budget, go back to your last recruitment budget (if you have one) to use as an example and baseline. Because 2020 and 2021 are quite the financial anomalies for any company, you probably want to skip further back to 2019 – the last ‘normal’ year. Once you’ve lined up your projected numbers against your actual numbers for the previous recruitment budget, sort out all the costs related to your recruitment into sections, such as:

There are many more, of course, but when you have a list, you can start assigning individual expenses to each step. Then, determine where you went over budget and where you ended up under budget.

You can also include costs related to the hours taken away from someone’s normal workflow in the hiring process, if they’re not in HR. A hiring manager, for instance, will take a number of hours out of their normal workweek every week to look at the final list of candidates, assess them, interview them, and so on.

Assign costs to those invested hours by breaking down the annual salaries of each member of the hiring team into hourly chunks – from there, you can start allocating hours at a fixed “cost” to each section listed here.

(By the way – this highlights the importance of a clear, standardized recruitment process. It’s not just about being organized and uniform in the process itself; it also provides clarity into where you’re putting your money. With a standardized setup, you can start comparing past, present and future budgets by measuring them against established benchmarks.)

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2. Time to fill and time to hire

When you put actual costs aside, the rest of it becomes less tangible, says Craig. “It’s not only money that you’re looking at. It’s also your time. How long did it take you to get those sales reps onto your team? Remember, time is money.”

The way he explains it, the time it takes to go from the very first day you start talking about filling a position to the day the new hire signs on the dotted line (or, in some cases, when they’re fully onboarded) – that’s your time to fill.

Time to hire is similar, except that it’s the time elapsed between the date that a specific candidate applied for a job and the date that they’re hired.

Look at your company’s work hours invested in the following categories, for example:

Again, this is not an exhaustive list.

Time to ramp

Calculating your recruitment “time” budget can also include time to ramp, Craig recommends. He uses the recruiting of a sales team as an example, asking: “What’s the ramp time for a sales rep in your company? Let’s say a sales rep ramps up over three months. If I’m going to hire someone in January, that means I’m going to have only nine months of full productivity from that over the next year.”

In other words, if a sales rep hired on Jan. 1 is expected to close $1 million a year, this means you can actually only plan for that sales rep to close $750,000 that year. It gets worse the longer you wait, especially if you’re building a sales team from scratch. Plus, if you onboard poorly, turnover increases, and you’re back to square one. So looking at time to ramp – and the resources invested in that – is crucial to planning your recruitment budget for the upcoming year.

“That’s the type of ‘cost’ related to your time to hire and time to fill,” Craig explains.

He highlights another scenario: the launch of a new feature.

“Let’s say I was going to launch a new feature in March, and I want my team hired and in place to be able to put it together between January and February, so it’ll be ready to go in March.”

And if you didn’t hire everyone you needed in that time frame?

“Obviously, then, your feature is not going to be ready in March. Now, the feature that was supposed to help generate an extra $200K a month in revenue for the sales team is now delayed by two months to May. And so, I’ve just lost $400K that I had budgeted for.”

There are multiple scenarios here that show the compounding effect of breakdowns in hiring processes. It’s not as simple as backfilling a position – you need to plan ahead of schedule. There are multiple parts that need to fall into place ahead of time so you can meet goals later on. And that of course has an impact on planning your recruitment budget whether that’s directly related, delayed, or indirect.

3. Also crucial: Turnover rate

Yes, even your best people leave for other opportunities. But they don’t always leave because of an offer they couldn’t refuse – they also leave because they’re unhappy where they are, because they don’t feel like the job was a good fit for them, and so on. That’s on you as a company.

So where does budget fit in here? Craig will consult with HR and find out what the company’s turnover rate is – here’s a tutorial on how you can calculate that yourself. Your current turnover rate for the last 12 months also helps you predict the number of hires you can anticipate over the next fiscal year on top of your planned upscale. For instance, if your company plans to add 30 sales reps over the next year, add your anticipated turnover to that, and multiply your cost per hire by that final number to get a good estimate of how much you can expect to put into the recruitment process.

Meanwhile, you can also see how your turnover rate stacks up against the standard, and adjust accordingly. According to Craig, you should look at your numbers and ask:

“Are you hiring effective people? Are you hiring the right people efficiently for the right cost? It’s all about the right person at the right time for the right cost.”

“Are you hiring effective people? Are you hiring the right people efficiently for the right cost? It’s all about the right person at the right time for the right cost.”

The right person hired at the right time will stick around, and that’s good for the bottom line. That means investing the right amount of money and time in the right spots. For instance, you could invest more in employee engagement initiatives – such as a corporate retreat, holiday or summer function, even a new, improved office environment.

Or, as Craig suggests, invest in a referral program to get more internal referrals – because referred candidates tend to stay longer with the company, your recruitment costs will go down.

4. Look to the past, to plan for the future

As Craig says, you need to look at your cost to hire, time to hire, and time to ramp, and figure out where you performed as projected/planned, and where you didn’t, and address the following questions in planning your recruitment budget:

You can then ask the more interesting questions:

  • Should we have hired quicker rather than waiting for the “perfect” candidate?
  • Should we have waited longer for a better candidate to come along?
  • What’s going to make it easier and more cost-effective for you to hire?
  • What’s going to make it easier and more cost-effective to stay on plan?

Planning your recruitment budget

For many, hiring is about people, but for Craig, it’s about money: “It’s all about how much it costs you to do it. Am I doing it for the right cost, and am I doing it fast enough? That’s why you look at this and see what happened, and then you ask; ‘Where can I make an investment to make this better? Where did I do things that were wrong or expensive? Maybe I should have a better ATS.’”

Obvious plug aside, what may seem intangible in a company budget can easily be dissected and optimized. Think about where you’re overspending, and follow the domino effect – such as the delay in a features release – and trace it back to its cause. It’s all interrelated. Craig sums it up: Start thinking about how to allocate your budget smartly for 2023 so you improve in all areas.

“Once you do that, you can then develop your action plan.”

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