Calculating Your Recruitment ROI - ApplicantStack

For small businesses looking to compete for quality candidates in a competitive job market, it can be useful to evaluate your recruiting process. How much return on investment (ROI) does your current system offer? Taking a hard look at recruitment metrics can provide plenty of insight into areas where improvement can offer big results.

According to Nadine von Molke at the Academy to Innovate HR (AIHR), recruitment ROI “measures the effectiveness and value of your organization’s recruitment strategies and activities used to attract, hire, and retain employees.” Though small businesses’ recruiting budgets are different from large corporations, there are important metrics applicable to all hiring. Let’s consider some of these metrics and how to measure them.

Components of Recruitment ROI Calculation

• ​Total Costs: This refers to all costs your company accrues as part of the recruiting process, including posting on job boards, advertising, outside recruiting expert fees, software, background checks, legal fees, or any interview costs. Internal costs could include time spent by staff writing job descriptions, posting, communicating, and interviewing candidates.
• ​Net Benefits: This metric refers to the value a new employee brings to your company. It could include productivity numbers, company revenue increases, targets reached, project completions, client acquisitions, product development, brand visibility, process improvements, or morale benefits that aid retention.

Total costs are easier to quantify in hard numbers; net benefits require some value assignment that’s specific to your company. Taking the time to recognize what improvements are beneficial to you helps evaluate each new hire through a similar lens and gives you a company-based formula to follow.

Once you’ve gathered this data, the calculation is as follows:

(Total Value of Hires – Total Cost of Recruitment) / Total Cost of Recruitment x 100

Calculation Example

Let’s say your company spent $50,000 in total costs, and net benefits add up to $80,000.

Calculating your ROI looks like:

($80,000 – $50,000) / $50,000 x 100 = 60

Your recruitment ROI is 60%. Generally, a recruitment ROI of 50% or higher is considered a favorable result. But that’s just the starting point of analyzing your company’s hiring efficiency and making a plan to move that percentage closer to 100. Where possible, it’s useful to compare your ROI to others in your industry to establish a benchmark to either meet or exceed.

Benefits of Understanding Recruitment ROI

Small businesses have a close relationship with the budgetary bottom line. Once you have the recruitment ROI number in your toolkit, you can drill down on specific recruitment metrics that can show the bottlenecks or inefficiencies in the hiring process. Consider metrics to track such as:

• ​Time to Fill: The calendar days it takes to identify, post, interview, offer, and receive acceptance for a position. This metric can show delays in internal identification of openings, management approvals, writing job descriptions, and posting on job boards.
• ​Time to Hire: The time it takes from a candidate applying for a job to accepting the offer. This metric can show lags in communication from the hiring department.
• ​Application Completion Rate: The number of prospective hires who follow through to the end of your company’s application system. This metric can reveal places where the process is confusing, laborious, or the candidates encounter broken tech.
• ​New Hire Turnover Rate: The time a new employee remains at the job for which they were hired. This metric can reveal problems with company culture, an ineffective interview process, or insufficient onboarding or training.

Each of these quantifiable metrics can reveal places where recruiting dollars are being misspent. Perhaps you see delays in writing and posting job descriptions because they get lost in an email thread waiting on approval, or missing out on candidates because of long delays in communication about the next steps in the process. Your company can benefit from an applicant tracking system like ApplicantStack to streamline those processes with ease. The ApplicantStack cost-per-hire calculator can give you a glimpse into the dollars you can save by using this powerful tool.

Utilize Technology to Boost Recruitment ROI

In terms of value of hires, tools like performance reviews, time-limited sales tracking systems, career advancement benchmarks, salary increases, or customer tracking can help you look at each new employee’s contributions to the revenue as well as team morale and unity. If much of your company’s tracking is feelings-based, consider some tracking tools that mark and measure an employee’s progress and development.

A focus on dialing into certain metrics can seem like the domain of very large corporations, but in fact small businesses are primed for improving the recruitment process with some simple changes. The initial time investment may feel like a barrier, but establishing the factors that go into calculating your recruitment ROI will pay great dividends in future hiring. A combination of streamlining human tasks and adding in efficient tools like ApplicantStack increases the ROI on paper, which translates to quality hires that can offer your company the dedication it deserves.