Case Study: What are the real costs of recruiting and options.
The cost of employing can exceed $40,000 per employee in the UK and over $30,000 in the US. Some of that expense is in the recruitment process itself: how much time HR staff and managers spend discussing the opening; advertising; hours spent screening; interviewing; re-interviewing; background checking; and more.
The recruiting departments frequently have to start the process all over again each time. If you have a dedicated recruiter on staff, you already have an idea of what the investment is annually. Have you amortized their salary and perks over the number of hires per year? You should know that an inside HR person amortizes the job position once the company has over 60 members because they do more than just job research. But, anyway, those expenses are just the tip of the iceberg in the cost to hire.
Then, when the founders do the recruiting in the early stages with no experience in hiring before. These costs can even increase if we talk about a startup that doesn´t have a human resources team and are the founders themselves who are dedicated to the process. This can lead to other sorts of losses such as losing good candidates, bad contracting…
So some recruiting agency could be a good option to find talent. Especially for small organizations, where employees’ time is already stretched thin, recruiting in-house often doesn’t make for a wise investment of resources. If you don’t have a dedicated recruiter, you’re pulling precious work time away from other staff members, time that affects your bottom line. A recruitment agency to get the right candidates (not just a pool of applicants) may be the way to go when you want to get the most bang for your buck. What are your real options? And why us much money?
But… What are my recruiting options?
In the past, as entrepreneurs, we have been struggling with recruiting agencies from local to large ones. The first thing that we observed is that the local ones find just local people so is limited. According to relocately three of five people with ages between 21 to 34 would move to another place if the job opportunity and perks are good.
So even you can have nice local talent, and, even more, when you live in a big city or a startup hub, the candidate’s approach should go further and reach as much real talent as possible. Local agencies treat was amazing and maybe the service if we were a traditional business too. Most of them and more in small cities are not focused on startups and disruptive niches. So even they do successfully work before maybe they can fulfill your position because they maybe don´t understand the market. Is not the same a shop than a SaaS company.
For a restaurant or a traditional business recruiting can be as easy as open Indeed or similar sites but for a new-gen enterprise that uses technology as the main service, companies that want to grow fast and are disrupting a traditional market or aim to be more than a local company among others, the process is more complicated. It took us some time to explain there the actual needs and the product and why we were looking for people involved in the past with startups.
The story starts many years ago with the founders and their local software solution for wineries in La Rioja. This place owns hundreds of wineries because is one of the top wine producers in the world.
When the company started they look for two engineers and one salesperson. They understand perfectly the engineer’s role and what they need, but because there were those developers first. However, with the salesperson, the headache starts. Of course, you will look for somebody with experience in the domain and if is in tech and with startups even better. Although what should the skills be? SEO, cold emails, they should have a degree in marketing?
The first things they discovered was that not all sites are suited to find people and that screening and revise CV´s can take a lot of time. The next one that they don´t know what the skills of candidates must be. Is not the same marketing for a real state agency than for a startup company. And even with startups is not the same a new hardware than a new app or a SaaS.
They also didn´t use any technology to improve the process, these kind of programs are expensive and if you aren’t going to hire at least two people each week could be a bad investment. So that´why it takes as much time, the system that we use now, for example, can discard proposals that don´t match the general criteria without spending time analyzing them. Or using a keyword to see if they read the full proposal.
We started to google everything. What the role perks should be? How much is the common payment? What the best salesperson abilities are? And to get informed and be “experts” we spend nearly 16 days. This not only kept us from continuing to improve the product and get clients but to be able to find the development roles. We put our resources on the sales role, we required the best in sales, nobody knew about us and we wanted a good strategy.Isa, Founder
But how Shest founders went from losing in their beginnings about 41,000 euros in bad hiring, scammy freelance teams, and loose time, among others. To end up being consultors to local companies about how they should hire and giving speeches in centers like 500 on “How to find a non-technical funder ” or “First steps to find your ideal candidate “is another story that gives for a post or several.
HR in-house team
When brands hire an HR manager they look for people who have studied human resources management, business administration or a related field. But when Shest started, the founders already know that an HR team should be an assembly of people composed of different preparations. These kind of teams are for companies that have over 100 employees and when you recruit the hiring team you should have a clear profile and understand the real needs of the role. And have strong experience with this in the past.
HR one person
When startups have to fill multiple openings and the team starts to grow fast the founders sometimes prefer to hire a person as HR. We regularly hear and is a normal error that HR do the hiring process, but this is just 10% of the work. In fact, the HR role is more about the employees’ treatment like handle employee relations, payroll, benefits, and training. Human resources managers plan, direct and coordinate the administrative functions of an organization.
The HR education is still applied to traditional business and most just focus on experience, even this is important when we talk about startups the HR should look for other skills and attitudes. That´s why independently if you are a new startup or a large corporation the HR should be composed for different roles depending on the people that you need.
So when you hire only one HR person is going to be almost the same as going on your own. Most people think that will solve the “productivity problem” but a few brands achieve such. So first that person is new to the company and also need to strive alone over the applications. Also as in past lines, we talked about skills, a good HR team needs to demonstrate the candidates’ skills and look further. To understand, if it is a good match for the role. Also, need to do all the process alone that could make the process long-drawn.
If you´re here probably you´re a startup that needs new talent. If you want to hire an HR team you should know the costs of that too. A perfect team for less than 100 people could be 3 people if they know how to organize and use programs to make every step easier. For 200-500 probably between to 6- to 10 members. But this number can deffer for the company, roles, how much the company is involved with the employees, etc. An HR manager can win near $106.000 per year, and a benefits manager can win $116.000 per year in the US. Then you need to put the expenses of hiring, sometime you will need to use a recruiting agency like for outsourcing and interim positions. That could go to over 300.000 per year. Also that a real HR team is not composed just for HR people or they need to work with the other departments to find real talent.
For example, Shest team is not formed only for HR people, of our people there are just four that own HR, and/or public relations degree and have experience in this field with startups and other recruiting firms.
Our team is composed of entrepreneurs (the founders). So if you are not an ultra company with hundreds and hundreds of employees is necessary that the C-suite and founders get involved with the process. They are the ones that know better their company and can express that. Then we have marketers, developers, financial advisors, salespeople… And different roles so we know exactly what each position needs and we can do the tests and a more customized interview.
Therefore if you are building a sales team you need to train them to understand all needs, new roles, trends… The team should work, hand by hand with the other members of the company and should have a leader of each area that refines the HR team.
When we first starting Shest we have a few things clear… First, that the team isn´t going to be composed only by HR we need to know about each role so we need different people. Also that the company only is going to work with startups so we can train the team for this new segment and can provide more value, not only for the clients but also for the niche that needed a huge shift. And that we will provide 360º solutions around the recruiting niche from full time and part-time, to freelances and project managing, perks, and benefits, training, remote hire…
Big names in recruiting
We try everything for hiring at the first SaaS company. And of course one of the attempts was with a big recruiting agency, the market leader. I only can say a few things, even the “going solo” process is a big waste of time and local agencies don´t have a big vision are probably better options than this. By hiring them is where we see a real need in the market and that we need to fix that somehow.
The first communication with one of these companies was to hire another salesperson and it was an urgent job so we think the best option was to use this sort of services. The first contact was great they guide us and ask for all the information that they will need to find us a perfect aspirant. But the headache starts again.
Initial, they told us that they have a customized database depending on your niche and that´s why they can find to us more qualified talent. Even a fast process is a plus and this was a kind of urgent job (less than 12 days) is not the same to have a database of people interested in past similar offers than take a candidate that was enrolled on your site, have a location near to us, and tell us that he was the best option. – We knew this by talking to him, he said that they called him and he accepted the interview, but he didn´t even read the offer. – So that peased as off. If somebody is charging a 15% fee of a total 40k/ year payment ($5.600) and do that is not fear and a non-professional service.
Anyway we started working with him and he wasn´t the match we expected, he doesn´t understand our needs and even he had several years of involvement in selling he never worked before with startups or tech product so he didn´t understand anything.
We called the recruiting agency and they told us that if we want to know who was the second candidate that “match the offer” we need to pay 3700eur extra. So we went into a nonsense discussion with them that didn´t go anywhere, because of that small print.
Personally, for me, this was a bigger struggle than trying to do it by ourselves. We lose a client contract, the money and also need to start again the recruiting process. That time we said that we are going to do the things our way and learn all about recruiting. And start putting our skills to work. Three years later we were helping other companies and start doing some recruiting tasks.Adrian, Founder
With the frustration of not finding resolutions in the market for our needs, we start crafting the vision of Shest and start focusing our knowledge and skills to help startups for real. No scratchy databases, no more small prints, no more “just experience”.Isa, Founder
How old-school recruiting agencies work?
Fill Jobs & trial
Agencies get paid to fill jobs, not book interviews. And that was also a problem. We needed the full job done not just a part. Plus, there is a payment for everything, things suck like the consultancy… In my opinion, if I am hiring an HR agency is because maybe I don´t want to waste time so I can use my time to grow the business, or maybe I just have no idea…
In both case the HR agency is the one that has more expertise in recruiting, so even the first consultancy and recruiting marketing should be a must, not all include it for free. This is the main mistake, and people who maybe never hired anybody and think that is just about posting an opening in Glassdoor have no idea about this process or pro skills.
For example, with all our experience using agencies from big ones to small ones, we believe that all do a great job with no discrimination. I can certainly tell that all recruiters can do great work with these it doesn’t matter if is a large or a small company.Adrian, Founder
Then with a temporary position, most of them also do great work and also with Temp to perm. It can take months to see if a candidate is the right fit for some openings. When you do temp to perm, you’ll have a longer trial period. And if you decide they’re perfect? Some companies opt to buy out the contract – paying a fee to take the hire off the “temp” payroll and put on to theirs. Depending on how long the buyout period is, you might consider leaving them as temps for as long as possible. By keeping them as an agency employee you not only spread out the cost of the buyout, you extend the probationary period.
The Cost of Doing Business
There are many types of agencies out there, with varying fee and warranty structures. Here are the main types you’ll see:
You’ll pay upfront and typically give them exclusive rights to fill the spot. These are rare and are generally for high-level or very difficult to fill spots.
Cost: On average 10 percent of annual salary to start recruiting, another 10-15 percent or more after hiring with a guarantee of three months. That means that if you want to hire a role with a salary of 80.000 per year, maybe a senior developer or product manager you will need to pay starting 8000 and up to 12.000 ( sometimes, even more, depending just on the responsibility of the role). And then again the same amount.
For us, this wasn´t a good way to work and dump it. The guarantees have a lot of fine print and probably the “customized supply” will be another database member or if you want a refund they will give you a part of the payment back like 3-5 %. We talk from our own experience and clients that try these before working with us.
This method sends in candidates and takes a percentage of the annual salary after the new hire has satisfied the guarantee period.
Cost: Typically 15-25 percent of the annual salary. Guarantee: Generally 60 days.
Honestly, we don´t believe that you can try someone experience and strengths in just a month. We are ending a case study with some clients, asking how much take the process of testing the candidate aptitudes.
Going back to the topic, the percentages just because they find you somebody and let you a trial is also too high-priced. The recruiting agency has one of the highest margin benefits based on fees and time invested making them one of the most rentable business. We need to stop that high fees, everyone deserves a capable team that helps you build the team.
Temporary or Temp to Perm
These agencies send in temporary workers who can come and go, or, if you find they’re a good fit, can transfer to your payroll. Their contract can be bought out for a fee, or after a length of time, you can have them for free. There’s typically a sliding scale on the buyout: The sooner you take them off the agency payroll and onto yours, the higher the cost.
Cost: 10 to 50 percent of the hourly wage Buyout: Generally after 90 to 120 days.
Again an old process that is not focused on the needs of the startup. These new-gen companies work fast, need valuable talent fast and if they need a supply or some talent for maybe an event or whatever to have it without the cost of the full event.
HR firms can do the outsource for your company finding any requirement that you need. We use that service multiple times after some bad experience. And even the service was good and we don´t have any complaints we want to improve this niche by being, even more, client-friendly.
Costs: % depending on the service. Guarantee: end-to-end
Is true that here the brands do a great work but the agency firms that we contacted only can outsource projects with other agencies. They do the tracking of the process and give feedback. But we want to go furthermost startups can´t hire top agencies and the budget aren´t the lowest with them. So that´s why after many years using freelances add this new service to Shest. You can choose between an agency or a freelancer we will serve as project managers through the complete process.
The vision starts because of these…
Hiring is hard, but hiring for startups can be even harder. We have been entrepreneurs and we deal with all these headaches. The interminable process like what is the best place to advertise or how I can prove their skills, what the f%$k is recruiting marketing… Or even how do I start?
People say that you learn from your own mistakes, but in our experience is better when you learn from others mistakes. Is great if you can save wasted hours that you could invest in growing your startup, tens of thousands lost in bad hiring, or in the process, and “arguing” with big names in the recruiting market.
We have gone through all the possible methods with all the perks and all the disadvantages. We see the struggle and consider that we can do a better job by focusing on the real market needs. All what we learned during our first years we first apply it in our own brand before using it with anybody. Moreover, before starting Shest we work for free for multiple startups from all stages to see real needs, ask them what an HR should do and how they should work. This is how we find our business model and how we launch Shest. Starting with a real problem that we suffer, listening to others and testing all solutions until finding our actual services, so we can supply successful startups.Shest Team
Shest is the first agency focused on startups, without small letters, and with a 100% money-back guarantee up to six months. Our contracts are as easy and you pay once you hire the candidate no first payments. We have a close 3% fee, we maintain a good profit with this and we don´t charge extra expenses.
Shest has a 97% success rate and our clients trust us since the first year. We try to do our best each day and keep improving. That’s why we start side projects to improve the niche. Also since 2019, we build a fund and 2% of the profit goes to promote education in underdeveloped countries and give 0% loans to local business.
Feel free to check our service and our corporate brief to know more about us, benefits, process… Anyway if we not convenience you yet or you want to go solo we build a free guide. Send as an email with the subject “Free guide” and we will love to send you a copy.