The Cost of Hiring Internally vs Using Direct Hire
Mar 3, 2025
Hiring the right talent is crucial, but the process can be costly and time-consuming. Businesses often struggle with deciding whether to hire internally or use a direct hire staffing service. Studies show that the average cost-per-hire for businesses is over $4,000, and it can take more than a month to fill an open position.
Total expenses can rise to three to four times the position’s salary when considering indirect costs like productivity loss and extended time-to-fill periods. These costs add up, especially if turnover is high or the hiring process is inefficient.
In this article, we’ll explore the costs, benefits, and challenges associated with hiring internally versus using a direct hire service. By the end, you’ll gain insights into the most cost-effective and efficient approach tailored to your business needs.
The Costs of Hiring Internally
Recruitment Costs: Posting job ads, marketing roles, and investing in recruitment tools contribute significantly to hiring costs. Posting on popular job boards such as Indeed, LinkedIn, and ZipRecruiter can quickly add up. For larger companies, hiring a dedicated recruitment marketer may be necessary, which brings additional salary and benefits expenses.
- Staffing companies often have dedicated recruitment marketing teams to do all of this for you which is a huge benefit to you.
Technology and Tools: Staying competitive in the recruitment industry requires leveraging the latest technology and tools. Investments in applicant tracking systems (ATS), AI-powered candidate communication platforms, and recruitment automation software are essential but can be costly.
On average, these recruitment technology tools can range anywhere from $10,000 – $80,000/yr.
Time Investment: The time HR and hiring managers spend screening resumes, conducting interviews, and negotiating offers is substantial especially without the proper tools and technology.
For one job posting, this is what the average time spent could be just in the beginning phase:
- Applications: 200 applications | 7 seconds per application | 23 minutes of time
- Calling to Schedule Phone Screens | 10 minutes per call | 1.5 hour
- Phone Screens: 10 applicants | 45 minutes per phone screen | 7.5 hours
- In-Person Interview: 3 applicants | 3 hours
Learn more about the HireLevel Recruitment Process.
Training and Onboarding: New hires require structured onboarding, thorough training, and time to reach full productivity. Without the right training software and resources in place, this process can become overwhelming for hiring managers, draining valuable time and affecting operational efficiency.
Effective onboarding tools streamline the transition for new employees, ensuring they are well- equipped to contribute from day one.
Turnover Risks: If the hire doesn’t work out, businesses face additional costs for rehiring.
The Benefits of Direct Hire Staffing
Pre-Vetted Candidates:
Staffing agencies provide highly qualified candidates, reducing time spent on screening. They have access to pre-vetted candidates within their ATS which reduces the time it takes to fill positions and minimizing the risk of bad hires.
This access to qualified talent allows businesses to keep hiring company stay competitive without investing heavily in recruitment marketing and tools.
Faster Hiring Process:
With established pipelines and recruitment expertise, staffing firms significantly reduce time-to-fill, allowing businesses to fill critical roles faster.
Reduced Hiring Risks:
By partnering with staffing agencies, businesses can mitigate the risks associated with turnover and poor hiring decisions. Staffing firms usually have company benefits, offer replacement guarantees and conduct comprehensive screenings, ensuring candidates are a strong fit for both the role and company culture.
Expert Recruitment Marketing:
Staffing companies often have specialized recruitment marketing teams dedicated to handling every aspect of the hiring process for you. This expertise saves you time and resources, ensuring your job openings reach the right candidates quickly and efficiently. With access to the latest recruitment technology, AI-powered candidate communication, and proven marketing strategies, staffing firms streamline the hiring process and reduce associated costs.
Internal vs. Direct Hire Pros & Cons
Internal Hiring
✅ Pros:
- Promotes company loyalty and career growth.
- Faster onboarding since the employee already knows the company culture.
- Saves on external recruitment fees.
- Reduces hiring risks by selecting known talent.
❌ Cons:
- Limits the talent pool, potentially missing out on more qualified candidates.
- Can create internal competition and resentment among employees.
- Requires additional training if the internal hire lacks necessary skills.
- May leave another internal position vacant, leading to a chain reaction of hiring needs.
Direct Hire Staffing
✅ Pros:
- Provides access to a larger and more specialized talent pool.
- Reduces time-to-hire with pre-screened candidates.
- Often results in higher retention rates due to better candidate matching.
- Frees up internal HR resources to focus on employee engagement and retention.
❌ Cons:
- Upfront placement fees or contract costs.
- Slightly longer onboarding compared to internal hires.
- Less immediate cultural familiarity compared to an internal candidate.
Comparing the Long-Term Financial Impact
1. Salary Expectations & Negotiation: Ensuring Competitive Yet Cost-Effective Salaries
Direct hire agencies use up-to-date market data to negotiate salaries that are both competitive and within budget. This ensures businesses avoid overpaying or offering too little, leading to a better chance of hiring quality, long-term candidates.
2. Hidden Costs of Internal Hiring: The Unseen Financial Burden
Internal hiring may seem cheaper, but hidden costs add up. HR overhead, lost productivity during hiring, and the risk of bad hires can result in significant expenses. For example, a bad hire can cost up to 30% of their salary. Staffing agencies help avoid these pitfalls by thoroughly vetting candidates.
3. ROI of Direct Hire Staffing: Long-Term Savings & Quality Candidates
Agencies provide a higher ROI by placing candidates who are a better fit, leading to better retention and less turnover. With a focus on quality, they help businesses save on long-term recruitment costs, improve workforce stability, and ultimately reduce the cost per hire.
How to Choose the Right Hiring Strategy
Choosing the right hiring strategy can make or break your recruitment efforts. The ideal approach depends on factors like the roles you’re hiring for, your company’s resources, and long-term goals. Here’s how to decide:
When internal hiring makes sense (e.g., promoting from within, hiring for more specialized skills or roles).
When direct hire staffing is the better option (e.g., reducing hiring time, filling hard-to-find positions).
Conclusion
Internal hiring and direct hire staffing each have their advantages, but understanding the full cost implications is key. If your business struggles with lengthy hiring processes, turnover issues, or high recruitment costs, partnering with a direct hire staffing firm like HireLevel can provide a more efficient and cost-effective solution. By leveraging expert recruiters and pre-vetted talent, you can secure top-quality employees without overextending your internal resources.
HR Resources You May Find Helpful
HR Blogs: The Difference Between Direct Hire vs. Contract-to-Hire, Why Labor Law Posters are a Must for All Businesses, 10 Effective Employee Retention Strategies, Why Hiring is So Hard Right Now + Easy Tips for 2025
Webinars: Watch On-Demand: Interview Do’s and Don’ts, How to Avoid Payroll Penalties & Ensure Compliance, Employee Handbooks in 2025, Mastering Leadership: Effective Strategies for Managing Difficult Employees
Checklists: Payroll Audit Checklist, 2025 HR Compliance Calendar
