Many businesses today are turning to recruitment process outsourcing (RPO) as a strategic talent acquisition strategy. As we’ve seen worldwide, the job market is more volatile than ever due to geoeconomic changes and new technological advances. According to a recent report by the World Economic Forum, by 2027, nearly one-quarter of jobs globally are projected to change, with 69 million new job roles to be created and 83 million jobs to be displaced. They also state that ‘job transitions are one of the most important mechanisms that need to be addressed in a changing labour market environment’, but what does this mean for recruitment?
Previously, job transitions happened organically over time, but businesses need a more intentional approach with the sudden changes job markets face today. Companies must focus on workforce planning and talent development to prepare for potential disruptions in the labour market. Ensuring a streamlined job reallocation process across firms and sectors is crucial.
In this context, recruitment process outsourcing can be valuable. It helps organisations manage talent challenges and analyse associated costs effectively. With an RPO provider's support, businesses can ensure a better return on their investment (ROI) in their workforce strategies.
RPO can offer numerous benefits to your recruitment success, from consistent and speedy hiring processes to reduced infrastructure investment – to name a few. However, while benefits are the central pillar to considering an RPO partnership, building a robust financial case is equally important to gain the buy-in of stakeholders. This might involve analysing overall costs, potential returns, and comparisons with existing recruitment methods. Whilst RPO is generally considered a cost-saving initiative for businesses with many hiring needs, evaluating how it will affect the long-term sustainability of your company must also be addressed. In any business, it’s essential to carefully assess expenses and return on investment (ROI), as they significantly influence decision-making processes. Below, through 3 simple points, we’ll help you financially analyse the impact of RPO on your operations to ensure it’s the sensible choice.
1. Calculate the total cost of ownership
The total cost of ownership (TCO) is an important metric that reveals the ‘true cost’ of a recruitment process outsourcing venture – the number one takeaway to consider. TCO encompasses the initial, upfront investment of a tailored RPO solution, as well as additional expenses that may surface over time to give you a holistic overview right from the outset. To calculate TCO for RPO, you should consider:
- Initial development costs
- Ongoing maintenance and support expenses
- Potential scalability needs
- Evolving technology trends
Total costs will fluctuate case-by-case, as RPO solutions depend on your business size and hiring requirements, so it’s crucial to understand this from the start. TCO will give your stakeholders an accurate picture of the implementation process, not just the upfront costs. Allocating a contingency fund for unforeseen circumstances or changes in project requirements will also demonstrate to your stakeholders that you’ve given plenty of thought to your RPO financial case.
2. Evaluating your expected ROI
To balance your TCO, you should also include the expected return on investment you project to receive by partnering with an RPO. This shows your stakeholders what they can expect from their investment to make sure it’s a worthwhile and positive business decision in the long term. To evaluate the ROI of an RPO strategy, you should consider the following metrics:
- Cost per hire: Evaluates the cost-effectiveness of RPO
- Time to hire: Measures the efficiency of the recruitment process
- Quality of hire: Assesses the value of new hires through performance, productivity, and retention rates
- Hiring manager satisfaction: Reflects the effectiveness of communication and alignment with team leaders
- Candidate experience: Evaluates the impression left on potential recruits
- Diversity of candidate pool: Measures the effectiveness of attracting a wide range of candidates
- Offer acceptance rate: Indicates the success of candidate engagement and job offer communication
Once you’ve chosen to implement an outsourced recruitment strategy, your RPO partner will work alongside you to track and monitor these metrics. This relationship provides complete visibility into your talent acquisition strategy, identifying areas for improvement, predicting future requirements, and relieving your internal teams' workload.
3. Compare in-house vs RPO costs
No matter the size or background of a business, maximising your ROI is a top priority for senior leadership and stakeholders. When contemplating partnering with an RPO provider versus building an in-house team, a common question arises: which investment is more cost-effective? To address this question effectively, you should consider:
- Fixed vs variable costs: In-house recruitment generally involves fixed costs such as salaries and benefits. RPO often uses variable cost models tied to the number of hires, providing a more agile and flexible approach.
- Setup costs: Establishing an in-house team requires a substantial investment, especially for businesses that lack expertise or don’t have a dedicated recruitment department/team. The total costs can accumulate from staffing, departments, resources, and technology investments. However, RPO providers already possess the necessary infrastructure and access to specialised recruitment tools and HR systems. As a result, partnering with an RPO provider can help reduce your initial setup costs.
- Operational costs: As previously mentioned, RPO solutions offer businesses more flexibility and scalability because the services are paid based on usage. This is unlike traditional in-house recruitment, which tends to incur ongoing salaries, benefits, and training costs.
- Cost reduction strategies:Throughout the entire talent management lifecycle, RPO can reduce costs through:
- Shared risk during economic fluctuations
- Reduced time-to-hire
- Integration of recruitment processes
Types of RPO cost models
Outsourced recruitment costs generally fall into three categories:
Management fee (fixed/flat model)
The management fee model involves a fixed fee that the RPO provider charges for the comprehensive range of outsourced services and infrastructure. Typically, the client pays a monthly fixed fee, which is determined by the size of the RPO team required and the agreed-upon number of annual placements. This pricing is most appropriate for an End-to-End RPO model, where the RPO provider manages the entire recruitment process.
Cost-per-hire fee (variable)
Unlike the management pricing model, which has a fixed-term fee, cost-per-hire fees are exactly what they sound like—they’re only charged once a successful placement is made. This fee is typically either a flat amount or a percentage of the candidate's salary. This model provides flexibility, allowing it to align with the role level or the source of the hire, hence the term "variable" fee.
Hybrid fee (flexible)
The hybrid fee model combines management and cost-per-hire fees for a fully flexible cost approach. These fees are ideal for businesses with varying hiring needs, providing a balanced and adaptable solution to meet their objectives.
So, is recruitment process outsourcing your cost-effective solution?
If your business is experiencing any of the following challenges:
- Fluctuating hiring volumes
- High agency fees
- A need for a more robust talent pool to address skills gaps
- A lack of expertise or resources in areas such as recruitment technology, diversity, equality, and inclusion (DEI), and employer branding
It might be time to consider a recruitment process outsourcing function.
Partnering with an RPO provider gives you access to extensive industry knowledge, which can lead to significant cost efficiencies and added value. By thoroughly analysing the financial elements of your RPO business case, you can help your stakeholders make informed decisions about implementing an outsourced strategy effectively.
Use this guide to build a strong financial case for RPO to persuade your senior leadership and stakeholders. Or, if you’ve already obtained the approval, contact NES Advantage today, and we’ll get you quickly established with a practical, tailored RPO solution. With expertise in the engineering and energy sector, a global talent pool, and a team of experienced recruitment consultants operating worldwide – you can trust us!
