What is recruitment process outsourcing and how much does it cost?

Any company’s success depends on the quality of its employees. One wrong decision can lead to a bad hire or a mishire, significantly impacting revenue. 

Losing a valuable employee costs $30,000, and recruiting, hiring, and onboarding a new employee can cost up to $240,000. Imagine losing all that for a bad hire.

This is why sometimes companies outsource their hiring process. Recruitment process outsourcing (RPO) is a term used to describe such scenarios. 

This blog discusses RPO’s effectiveness, the process behind it, its benefits, challenges, and more. Read on to find out if you should opt for RPO. 

What is recruitment process outsourcing?

Recruitment process outsourcing (RPO) is a type of business process outsourcing (BPO) where companies outsource the entire or parts of their recruitment process to an external service provider. 

For hiring purposes, an RPO provider may use its own or assume the requested company’s staff, methodologies, technologies, and reporting. 

There are three different categories for outsourcing recruitment process, namely:

• Complex outsourcing includes full services, such as finding and evaluating candidates and handling administrative tasks.
  
• Selective outsourcing focuses on recruiting and selecting staff for specific job positions.
  
• Project recruiting involves hiring many workers for a particular project.

RPO providers fully manage a company’s recruitment process. They are fully responsible for its success, unlike staffing agencies or search firms, which are responsible for its success but only help fill specific roles without managing the entire process.

The main objective of recruitment process outsourcing is to act like a third-party service provider and bring qualified candidates (find, screen, and assess) to the employer with minimal involvement from the HR department. 

Check out Testlify’s AI-powered assessment to evaluate your next quality hire. 

How much does recruitment process outsourcing cost?

There are multiple pricing models available for companies looking to outsource recruitment processes. Ultimately, the cost of RPO depends on the provider and company’s needs. Some of the common pricing models include:

Management fee (Fixed fee model)

Recruitment process outsourcing charges a fixed fee that covers all hiring process management, such as service, expertise, and infrastructure. This type of pricing model is generally associated with enterprise RPO services. 

This fixed-feel model is light on the budget, and the RPO provider takes less risk than the other models. The only drawback to this model is that since the fee is fixed, the RPO provider may have little motivation to go beyond basic performance standards.

Cost per hire

Cost per hire is basically what it means: clients pay a fixed amount per hire made by the RPO provider. The hiring fee changes based on the job type, industry, and number of hires. This cost-per-hire model is usually for short-term or project-based RPO partnerships.

This model is a great option for small-scale businesses looking for low-volume hires. However, the variable cost of this RPO model may affect budgeting during high-volume hiring. 

Hybrid-blended pricing model

This model combines a monthly management fee with a pay-for-performance approach. It reduces risk for the RPO provider and allows more scalable talent solutions than a fixed-fee model. 

The most prevalent version is the True Up Pricing Model, where open and close fees are adjusted to a single minimum monthly payment, typically based on the higher of the two costs.

Management fee with cost per hire 

In management fees with cost per hire, recruitment process outsourcing providers charge a monthly fee for service while also receiving payment for each successful hire. The management fee acts like a baseline cost structure, while the variable cost per hire lets the pricing adjust based on changes in hiring needs.

The only drawback to this model is the combined fee structure might be heavy on the billing. 

Cost per slate

The RPO provider charges a fee to deliver a list of the most qualified candidates for a client’s job opening. After the RPO sources, screens, and shortlists candidates, the client’s recruiters or HR team handles the interviews and selection. This approach is usually linked to project or short-term RPO.

This model motivates the RPO provider to deliver high-quality candidates with each list. Organizations pay for each list of candidates, regardless of whether a hire is made, which can lead to increased expenses.

Cost per transaction

RPO providers charge a fee for individual steps in the recruitment process, like resume screening, interviews, or reference checks. This model gives clients a clear view of costs, allowing them to pay only for the services they need instead of the whole process.

Though this model allows companies to pay for any specific process or step, it might complicate billing, especially when multiple transactions are involved.

Benefits of recruitment process outsourcing 

96% of companies that used recruitment process outsourcing witnessed increased hiring metrics. 58% of them saw a reduction in time-to-hire. Apart from these, there are other advantages, some of which include:

• Recruitment expertise: Ideal for companies without in-house recruitment or those seeking more robust talent acquisition.
  
• Cost savings: Often more affordable than maintaining an internal recruiting team.
  
• Efficient resource use: Frees up HR and hiring managers to focus on core responsibilities.
  
• Compliance support: RPO providers stay updated on regulations, ensuring clients meet compliance standards.
  
• Better candidate experience: Builds employer brand and reputation through solid talent relationships.
  
• Top talent: Targeted recruitment marketing helps attract top candidates in competitive or niche markets.
  
• Advanced metrics: Provides insights like people analytics to improve hiring practices and predict future hiring needs.
  
• Technology solutions: Uses cutting-edge recruiting tech, including social media, to streamline communication, enhance candidate experience, and speed up hiring.
  
• Diversity opportunities: Connects with diverse networks to help meet diversity, equity, and inclusion (DEI) goals.
  
• Globalization support: Standardizes sourcing, hiring, and onboarding processes for companies expanding internationally.

Challenges of recruitment process outsourcing

Though there are several benefits of using recruitment process outsourcing, it also has certain limitations. 

• Lack of knowledge: RPO providers might lack a deep understanding of the company culture or industry, which can result in mismatched candidate recommendations.
  
• Loss of control: Employers give up direct involvement in hiring, which can be frustrating for HR teams and hiring managers.
  
• Dependency: Companies may struggle to bring recruiting back in-house or switch providers if they’re unhappy with RPO performance.
  
• Cost: For some, especially smaller companies, outsourcing may be more expensive than in-house recruiters.
  
• Technological integration: Integrating RPO systems with the company’s tech can be difficult if the RPO’s systems aren’t compatible.

How does recruitment process outsourcing work?

RPO services begin with an agreement defining the project scope, timing, and cost, often ensuring candidates are exclusive to the client. The RPO provider and client HR then align on job descriptions before advertising roles using the RPO’s or client’s tools and methods, often including social media.

As applications come in, the RPO assesses candidates, adjusts job descriptions if needed, and tracks each applicant using an applicant tracking system (ATS).

The RPO team screens and shortlists top candidates for the employer, conduct interviews, and may assist with initial offers, negotiations, and onboarding. A successful RPO process results in the employer interviewing a small, well-vetted pool of candidates.

Final takeaway

Recruitment process outsourcing (RPO) gives organizations a strategic edge in managing hiring. Using RPO, companies can boost recruitment efficiency, access specialized talent, and improve candidate quality. 

Outsourcing provides expertise, advanced technology, and scalability, allowing businesses to focus on core operations while meeting staffing needs. Companies should consider RPO if they face challenges in recruitment efficiency, need to access specialized talent or require flexibility in scaling their hiring efforts. 

However, before deciding, it is essential to evaluate their specific needs, budget, and willingness to share control over the hiring process.