Most companies know what they paid an agency and have no idea what the hire actually cost them. The agency fee is usually the most visible line and rarely the largest one.
A practical overview of workforce analytics software can help teams connect this process with day-to-day operational data.
Here is the full picture, and a worked example you can adapt to your own numbers.
The four cost buckets
1. Direct spend
Job board postings, sponsored listings, careers site tooling, ATS licence apportioned to the role, background checks, assessments, travel for interviews, and any agency or search fee.
This is the bucket everyone tracks, because it arrives as an invoice.
2. Internal time
The bucket almost nobody tracks, and often the biggest.
Count the hours and price them at loaded cost — salary plus employer taxes and benefits, which is typically 1.25 to 1.4 times base pay:
- Writing the job description and getting it approved
- Reviewing applications
- Phone screens
- Interview panels, multiplied by every interviewer and every candidate
- Debriefs and decision meetings
- Reference checks
- Offer approval and negotiation
- Onboarding preparation
A five-stage process with three panel interviewers, run across four finalists, is a lot of senior hours. Priced properly, it frequently exceeds an agency fee.
3. Vacancy cost
What the empty seat costs while it is empty.
For a revenue-generating role, this is straightforward: the revenue that person would have produced, minus their cost. For a sales role at reasonable quota, a three-month vacancy is usually the single largest line in the whole calculation.
For non-revenue roles it is harder but real: work not done, projects delayed, overtime paid to cover, and the load falling on colleagues — which has its own downstream cost in turnover risk.
A useful rough approach: estimate the daily contribution of the role, multiply by working days vacant, and be honest rather than conservative.
4. Ramp
New hires are not productive on day one. Depending on seniority and complexity, full productivity takes anywhere from one to six months, and you are paying full salary throughout.
Estimate the productivity curve — say 25% in month one, 50% in month two, 75% in month three — and count the shortfall as a cost of the hire.
A worked example
A mid-level operations manager, $95,000 base, filled through a contingency agency at 20%, with a 10-week vacancy.
| Line | Cost |
|---|---|
| Agency fee (20% of $95k) | $19,000 |
| Job advertising before engaging the agency | $1,200 |
| Background check and assessment | $400 |
| Internal time — 38 hours at ~$85 loaded | $3,230 |
| Vacancy — 10 weeks of partial coverage and delay | $18,000 |
| Ramp — productivity shortfall over 3 months | $11,000 |
| Total | $52,830 |
The agency fee is 36% of the total. The vacancy and ramp together are 55%.
This is why "we saved the fee by doing it ourselves" is often false economy: the internal route usually takes longer, and vacancy is the expensive line.
The cost of a bad hire
Higher again, and worth modelling separately when deciding how much process to run.
- Everything above, spent once and wasted
- Salary paid during a period of poor performance
- Management time on performance conversations and documentation
- Severance, and potential legal exposure
- The full cost of the replacement hire
- Damage to the team — bad hires drive out good people, which is the cost nobody puts on a spreadsheet
For a manager-level role, a bad hire commonly costs well over a full year of that salary once everything is counted. This is the argument for structured interviewing and proper reference checking: they are cheap relative to what they prevent.
Where the money is actually saved
Shorten time to fill. Vacancy is usually the largest controllable line. Most delay is internal — slow feedback, unavailable interviewers, decision-makers who need convincing after the fact. See how to shorten time to fill.
Reduce the number of interview stages. Each stage multiplies internal hours across every candidate and adds days during which candidates take other offers. Five stages rarely produce better decisions than three well-designed ones.
Improve the posting. A posting that attracts the right people cuts screening time and improves the pool. See how to write a job posting people respond to.
Structure the interviews. Structured, criteria-based interviews are both faster and more predictive than unstructured conversations. See structured interviews.
Decide the salary range before you start. Discovering an internal disagreement about compensation at offer stage costs you the candidate and restarts the search.
When an agency is worth the fee
Run the comparison honestly, not as a fee-versus-no-fee question:
Agency route: fee + reduced internal hours + shorter vacancy. Internal route: no fee + higher internal hours + typically longer vacancy + advertising.
For common roles in deep talent markets with a functioning internal recruiter, internal usually wins. For scarce skills, urgent roles, confidential searches, or when nobody internally has capacity, the vacancy line alone often covers the fee.
We have written up the comparison in more detail: in-house recruiting or an agency.
Start measuring three things
If you track nothing today, start here:
- Time to fill — requisition approved to offer accepted
- Interview hours per hire — total across all interviewers and all candidates
- First-year retention of new hires
The first two tell you where the cost is. The third tells you whether the money worked.
PJP fills permanent roles with a written replacement guarantee and a named consultant. Direct-hire recruitment → For broader reference, consult BLS wage data.