The 2022 Talent Acquisition Report claims that the average cost of hiring is $4,683. But this doesn’t include the cost when the hiring process takes too long, or the candidate is a bad fit for the role. Luckily, AI recruitment agencies can fix this. They work to drastically reduce costs by streamlining the hiring process. With the help of AI, the cost of recruiting may go down by up to 60 percent. This will include bulk resume filtering, a quicker time-to-fill, reduced dependence on third-party agencies, and more.
What Is Cost-Per-Hire and Why It Keeps Rising
Calculating the cost per hire may seem simple: calculate the total cost of all hiring activities, divide it by the number of candidates recruited.
In practice, this value tells recruiters the expenses associated with the hiring process. These costs may range from payments to job boards, recruiters’ salaries, onboarding tools, background checks, and software licenses. In many organizations, this value keeps increasing without anyone figuring out why.
The average cost of hiring an employee is $4,683, according to SHRM. This number can double if the role is for a mid-level or specialized employee.
But why does this happen?
Most jobs have lengthy job descriptions and get a snowstorm of CVs (which can be submitted using AI). This leads to multiple interviews, delays in scheduling, and a payment of 15%-25% to external agencies based on the candidate’s salary for the first year. This means that each step in this procedure creates more friction and more expenses.
But there are hidden losses that come if you hire the wrong candidate. According to the U.S. Department of Labor estimations, hiring the wrong person can cost you 30% of one year’s salary of this candidate.
So, if a wrong candidate makes $70,000 a year, you could lose up to $21,000 for making a mistake in your choice, and then you have to start this whole recruitment process again. These are serious financial losses if you make several wrong choices every year.
What Makes an AI-Native Agency Different
It’s easy to be misled, but not all AI recruitment agencies are the same. Almost every HR product has the word AI stamped on it. But the difference is how AI is used and how deeply it is woven into the process.
Some agencies use a few AI tools to help with the hiring process. This could be as simple as an ATS with the ability to filter candidates based on keywords, or have a chatbot to help customers with FAQ’s. AI is used to help with minor parts of the process, but major decisions are made manually.
The more common kind of agency is the AI-Native recruitment agency. AI is embedded in the entire hiring process from sourcing to offering candidates the position. Every step is automated, from candidate outreach, pre-screening using phone screeners, sorting, scheduling, interviewing, and finally offering the candidate. Every decision made is backed by data, and every interaction with the candidate is recorded, making the workflow seamless. This makes the entire hiring process much more efficient and saves time, energy, and money by cutting down hours needed to complete each task while being reliable and bias-free.
Where the 60% Cost-Per-Hire Reduction Actually Comes From
You won’t achieve 60% cost-per-hire savings from any one recruitment software tool. It will only work when all features come together. So, there’s no one way of achieving 60%; there are multiple efficiencies that work well together to get there.
Bulk resume screening: On average, it takes recruiters from 6 to 7 seconds to go through a resume. Considering you get 300 applications for one position, you have to waste countless hours reading through hundreds of profiles and, even worse, making inconsistent decisions. Good candidates get overlooked simply because they’ve been applying too late, while some good-looking ones may miss their chance due to small formatting issues. An automated resume screening process will help you check each profile instantly using consistent criteria.
Time to fill: Vacant positions can cost a company a lot of money in the long run, and that is not included in any recruitment budget. Inefficient processes, overtime for colleagues, and delayed project deadlines are just some reasons why. As stated in the 2024 LinkedIn report, AI helps expedite the process of filling job positions, dramatically decreasing the time to fill vacancies. The quicker you fill an open job role, the lower the expense associated with having an empty position. This by itself can cover quite a big portion of the recruitment expenses.
Fewer costs for outside agencies: External agencies add their tag to each successful hire. AI recruiting platforms help companies reduce the amount of work for outside recruiters. As a result, when your in-house recruiting team processes the same number of applications that were previously processed by outside agencies, you save on their commission fee, ranging between 15%-25% per position.
Higher chances for candidates to be fit and reduced turnover: With the help of AI tools that rank candidates based on their match with position-specific success criteria, one can decrease the percentage of bad hires, who can cost the employer 30% of annual salary.
Scheduling and coordination: Time spent by recruiters to negotiate schedules is wasted on back-and-forth emails as they search for suitable interview times. With automated scheduling, recruiters can save several hours per hire.
When you add up these savings, from screening, reduced time-to-hire, decreased reliance on recruiters and agencies, greater compatibility, and fewer coordination costs, the 60% savings don’t sound like fancy marketing anymore; it’s just math.
What Changes for Your HR Team Day-to-Day
The change is clear. You can now process twice as many resumes at the same time at the same cost and with the same staff. Instead of a two-member recruitment team handling five positions a month, the same group will handle ten. They won’t be overworked or sacrifice quality either.
Recruiters can devote less time to initial resume screening and scheduling, focusing instead on the tasks that need actual human decision-making. Final interviews, compensation negotiations, enhancing candidate experience, and relationship management with hiring managers take precedence over mundane tasks.
In addition to that, products like virtual interviewing platforms can help recruiters with the decision-making process by generating detailed reports throughout the hiring process.
Hiring expenses are no longer something companies need to foresee and budget for, but are rather something they know right away when an additional expense occurs, as opposed to finding out at the end of the quarter that they’ve overspent on hiring. Leadership teams get the information on what job boards have the best candidates, where delays happen the most often, what requisitions perform well against the benchmarks, etc.
The hiring manager receives fewer but better-qualified candidates, quicker feedback, and spends less time interviewing unqualified candidates. The whole approach to hiring may actually be more efficient, not only in terms of expenses but also in other aspects.
Conclusion
- The average cost of hire is $4,683 (SHRM, 2022), while a senior hire can cost 2-3 times as much.
- AI recruitment saves on the costs of hire through quick screenings, saving time to make a hire, eliminating agency fees, and enabling remote interviewing.
- Poor hiring choice incurs an estimated loss of at least 30% of the individual’s annual salary (US Department of Labor). That is why fit comes second to speed when making an employee decision.
- Unilever reportedly saved 100,000+ working hours a year using AI hiring in recruiting, resulting in better quality hires and improved candidate experience.
- When you can measure the cost of hire in real time, it becomes something practical.
