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Evaluating the Cost-Effectiveness of Internal vs. External Recruitment

Updated: Sep 4, 2023

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Are you facing the decision between internal and external recruitment?

When it comes to recruiting new staff, it is essential to consider both internal and external recruitment options. Choosing the right recruitment option for your company requires careful evaluation of the advantages and disadvantages of each.

Cost is one of the most crucial factors to consider when deciding between internal and external recruitment.

Internal recruitment

In-house recruitment can be a cost-effective way to find the right candidate for your organisation. However, there are some costs associated with the process that you should be aware of. These include:

  • Cost of interviews

  • Cost of background and reference checks

  • Cost of screening

  • Cost of onboarding and training

  • Takes valuable time and focus away from key members to do recruitment

  • Small pool of candidates (increases the chances of a bad hire).

  • Lower employee retention and higher staff turnaround (this can further increase training costs because more employees will need to be trained).

  • Loss of productivity (devoting time and resources to recruitment can take away from other important business operations, leading to a loss of productivity. This is particularly significant if the process is long and involves several stages, as this can result in further delays and disruption to ongoing projects).

  • Length of the process (if the recruitment process is too long then the risk of losing out on top-tier candidates is substantial, as such candidates may have already secured employment elsewhere by the time an offer is extended, leaving only secondary candidates for consideration).

External recruitment

External recruitment can also be a cost-effective solution for businesses looking to reduce their recruitment costs. Although there might be an initial finders fee, there are some long-term benefits which can outweigh these costs.

  • For starters, external recruitment can provide access to a larger pool of candidates (this can reduce the chances of bad hire).

  • External recruitment can also save businesses time (by outsourcing the recruitment process, businesses can free up resources to focus on other areas of the business).

  • Businesses can also benefit from their expertise and experience in the recruitment process. This can help to reduce the time spent on recruitment and the cost of hiring the wrong candidate.

Which is the most cost-effective?

It's apparent that both internal recruitment and external recruitment have their advantages and disadvantages.

However, studies do suggest that external recruitment is the most cost-effective option in the long run as it saves time, frees up resources, and ultimately improves the efficiency of the process.

  • For example, the study "The Cost of Poor Hiring" by Amanda S. White and James B. Kauffman (2012), found that external recruitment is the most cost-effective recruitment option because it is the most efficient and effective way to find the right people for the job. Consequently, this reduces the time and resources required for the recruitment process.

  • Additionally, a study by Michael D. McLaughlin (2010) on the relationship between employment agencies and hiring efficiency concluded that external recruitment can help organisations to reduce their recruitment costs by up to 40%. It also found that external recruitment can reduce the time taken to fill a vacancy by up to 50%.

To summarise

It can be concluded that both external and internal recruitment have their own advantages and disadvantages. However, the findings of this article suggest that external recruitment has the advantage of being the most cost-effective option. If you would like to learn more about our recruitment services, please follow the links below where you will find more information through our case studies and recruitment page.

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