and Efficiency Benchmarks Introduction This research contains benchmarking insights from our 2023 HR Budget and Efficiency Benchmarking Survey. Human resources leaders can compare their HR function’s performance to that of their peers, assess cost optimization strategies and prioritize future HR investments.
Overview Key Findings • The average HR functional spend as a percentage of revenue is 0.76%. Compared to other support functions such as finance (1.30%), IT (3.25%), marketing (7.5%) and sales (4.37%), HR receives one of the lowest investments. • HR accounts for 1.47% of organizational operating expenses on average. • HR functions spend $2,810 per employee annually, on average. The top spending areas are recruiting ($401 per employee), total rewards ($221 per employee) and L&D ($202 per employee). 8.4% of the total HR budget is allocated to HR technology, which is the top area in which HR plans to invest for the third year in a row. • HR functions deploy one HR FTE per 58 employees, on average. Most HR full-time equivalents (FTEs) are involved in recruiting (3.08 FTEs per 1,000 employees), HR administration (2.29 FTEs per 1,000 employees) and employee relations (1.51 FTEs per 1,000 employees).
Recommendations • Use benchmarks as a first step to validating their own performance and identifying potential areas where they could adjust spend or make investments. • Benchmark their function by completing the HR Budget & Efficiency Benchmark and receiving a personalized baseline comparison of how their HR functional spend and efficiency compares to key HR performance metrics. • Extend their benchmarking analysis by assessing the depth, breadth and quality of their HR services to determine the trade-off between the efficiency and quality of HR services being delivered. • Link cost and efficiency benchmarks to a larger discussion about HR’s strategic priorities and business impact by aligning HR spending and staffing allocations to business objectives. This enables deliberate decision making on which HR services should be best in cost/efficiency versus best in quality/effectiveness.
When we look at HR cost as a percentage of revenue benchmarks across multiple industries, we see industries with a high ratio of highly skilled staff at the top of the list (e.g., professional services, technology, financial services or pharmaceutical companies). In contrast, more labor-intensive industries are at the bottom (e.g., manufacturing) (see Figure 1).
n = 333 HR leaders Source: 2023 Gartner Budget and Efficiency Benchmarking Survey
Typically, organizations with a greater level of HR investment relative to revenue
see HR as a strategic enabler that can improve workforce productivity levels and thereby business performance. However, HR cost as a percentage of revenue levels above or below the benchmarking average should not necessarily be interpreted as good or bad. The metric neither reflects the quality of HR services provided nor HR’s contribution to business performance. Multiple internal and external factors affect the calculation. Therefore, HR spending as a percentage of revenue needs to be viewed in the context of the HR function’s maturity level, the business leader’s satisfaction with the HR service they receive and the level of investment other organizational support functions receive (e.g., IT, finance, marketing). This perspective can provide further context for whether HR cost as a percentage of revenue is at an appreciable level or not.
The average HR spend per employee is $2,810. Industries with the highest HR cost per employee again tend to be the ones with high ratios of highly skilled staff. HR teams within the manufacturing or consumer goods industries typically spend the least per employee (see Figure 2).
Figure 2: HR Spend per Employee
Median: $2,815 cross-industry
Banking and Financial Services $3,915
Technology and Telecom $3,484
Energy and Utilities $3,350
Professional Services $2,857
Manufacturing $2,583
Consumer Goods $2,534
Healthcare Providers, Pharmaceuticals, $2,451
Life Sciences and Medical Products
$0 $0 $2,500 $2,500 $5,000 $5,000 n = 393 HR leaders Source: 2023 Gartner Budget and Efficiency Benchmarking Survey
With respect to efficiency, on average, HR functions deploy one HR FTE per 58 employees. Organizations with highly labor-intensive operations tend to have the highest HR productivity levels (e.g., manufacturing industries) (see Figure 3).
Figure 3: HR Productivity Ratios
Median: 58 cross-industry
Manufacturing 78
Healthcare Providers, Pharmaceuticals,
68 Life Sciences and Medical Products
Consumer Goods 58
Energy and Utilities 55
Technology and Telecom 51
Professional Services 50
Banking and Financial Services 49
0 40 80
n = 442 HR leaders Source: 2023 Gartner Budget and Efficiency Benchmarking Survey
Conclusion Benchmarks can serve as a foundational component to guide HR leaders in rethinking and reprioritizing functional spending, providing context for required optimization strategies and advocating for critical investment opportunities. However, the metrics and benchmarks outlined in this research focus on HR’s cost and efficiency, not its effectiveness and maturity. Therefore, HR leaders should link these cost and efficiency benchmarks to a larger discussion about HR’s strategic priorities (see HR Score) and business impact (see Toolkit: HR Value Assessment). This strategy includes moving beyond how much the HR function is spending compared to peer organizations to identifying HR services that require funding or additional investments to support business objectives and provide an opportunity to gain a competitive advantage. Having greater visibility into how HR spending and staffing allocations are aligned to strategic business priorities helps HR leaders make better decisions on which HR services should ultimately be best in cost/efficiency versus best in quality/effectiveness.
Evidence This research contains results from more than 600 HR organizations from across the Americas (73%), EMEA region (21%) and APAC region (6%) that participated in our 2023 HR Budget & Efficiency Benchmark survey, conducted from January through December 2023. Participating organizations represented all major industries, revenue sizes and organization sizes.
Resources Available to Gartner Clients:
We recommend Gartner for HR Leaders clients complete their own benchmarking using our HR Budget & Efficiency Benchmarks to get personalized results against the metrics outlined in this report and filter results according to their peer group.
