Here is how much it costs your startup / SME to hire

and what is the best solution to choose

Hiring feels like magic - no one can estimate the true cost of it to a company. How is this helpful? It is not. Not one bit helpful.

You do not know how to hire for your team. You are clueless on how much it will cost you.

Well, my friend, you are not alone. No one - not especially in small companies - can give a good estimate. Not in dollars. Not in euros.

Maybe it is the first time you hire in your life. Maybe you have done it a couple of times before but your company did not give you any proper training on that. You were just told to interview that person. Maybe you have raised money for your project, and now you need to pay the people who can help you make it a reality. Bring it into the world.

You feel exactly the same in all of these cases - you have to do it, and you will. You will find a way, and you will learn along the way.

Now, how do you put an estimate on:

  • how long it will take (a week, a month, two?)

  • how many hours are needed (10 hours, 100 hours, more?)

How do most people do it?

Most people improvise when hiring a new team member- trying, failing and maybe doing a half-baked job.

At the end, a job offer is made. It is accepted. The new person starts in two weeks, on Monday.

Then they sit down and try to estimate the man hours and actual money paid to finish the whole process. A number materialises. A number that can only be calculated in retrospect.

That’s not good enough either.

Why it does not work

Fast forward 3 months in the future - sometimes even 6 months.

The person is not performing well. You try to help but the result is the same. Finally, you need to let go of this employee and start again.

So how much money does it take to hire now?

Well, you have already got a number. Add the salary that you have been paying during the last months to it. You have a new number now.

Unfortunately, the cost is even higher than that new number. We need to adjust for the loss of productivity the company has gone through. But this estimate is near impossible to make.

I will not ask you to do this. Instead, …

Here is how to calculate the cost you will have when hiring

  1. Free - do it yourself (DIY)

  2. Cheap work with an expert for 3 hours + DIY

  3. Mid-range hire an external recruiter

  4. The biggest commitment work with an agency

Let’s go over each section.

❗️ for the purposes of the calculations below, I will use 20 candidates applying for your open position. You have one open position.

Free(ish) - do it yourself

You need 1 hour to prepare the interview structure and questions. Then - 30 minutes to research each candidate. 2 hours of interviewing per candidate. 2 hours of evaluation at the end. 3 hours to draft and send the contract for the job offer.

This is 56 hours of work.

Let’s say that you are paid 50$ per hour.

Total cost of hiring (without sourcing 🥲) - 56 × 50$ = 2,800$.

‼️ The chances to make the wrong hire are high. You might need to rehire within 6 months.

Cheap - get pointers from a professional

The interview prep is 3 hours - booked with an expert. The calculation is the same for hours spent interviewing. The final evaluation drops down to 1 hour. The contract preparation drops down to 2 hours.

This is 45 hours of your time - 2,800$.

You pay the expert for the 3 hours of advisory work - 3 × 130$ = 390$.

Total cost of hiring (without sourcing 🥲) - (56 × 50$) + (3 × 130$) = 3,190$.

p.s.: Reply to this e-mail if you want me to give you the names of a few professionals.

Mid-range hire an external recruiter

Usually you pay a monthly fee to the external recruiter you hire to jump temporarily on board. The recruiter does most of the job, but your input is still needed.

Set about 7 hours of your time for that - 7 × 50$ = 450$.

The average fee fee of an external recruiter is about 3,000$ a month.

You are hiring 1 person so it will take about a month to close the position.

Total cost of hiring - (7 × 50$) + (3000$) = 3,450$

The biggest financial commitment work with an agency

They do everything for you, and you just evaluate and do the final interview.

Dedicate 7 hours of your time for that - 7 × 50$ = 450$.

Agencies change 15-25% of the annual salary of the person they help you hire.

Let’s assume that the salary you offer is 40,000$. 15% x 40,000$ = 6,000$.

Total cost of hiring - (7 × 50$) + (6000$) = 6,450$

Here are some resources that might be further helpful to you

This is it.

Now you know how much it will cost you to hire someone for your team. Use his knowledge wisely, and choose the best option for you and your company.

Yours truly,

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