4 Methods to Determine Recruitment ROI
Within the HR space, we see all levels of professionals face the same challenges when it comes to finding talent and doing this cost-effectively.
From an entry-level recruiter to the Director of Human Resources, everyone makes the choice to try new methods and new tools to make their recruitment quicker and bring down the cost per hire.
Of course, with those choices, comes risk!
“How do I know I can make the hire within a reasonable time frame, if I am paying for LinkedIn Recruiter?” and “What is the ROI if I pay this amount of money to Indeed?”
And of course,
“Do I calculate cost per hire based on actual hires? Or are there other methods to measure the ROI on my recruitment tools?”
These are all questions us HR professionals need to ask ourselves, as we evaluate the success of our hiring and the make decision to use a tool, long-term. And with that, HR Tech has advanced significantly over the years, making our metrics that much more complicated.
Since this territory comes with a lot of “what if’s?” and not as many guarantees as we like, here are our methods for considering cost-per-hire and how to avoid becoming “Penny Wise and Pound Foolish” with your recruitment.
- Invest in the Recruiter First
Last week, we discussed within the “3 Fundamental Reasons Companies Fail To Attract Top Talent” that companies need to measure hiring ROI firstly on the amount of investment they place on their internal recruitment.
HR best practices have proven time and time again that you never want to skimp on a valuable and knowledgeable recruiter. “A Players are attracted to other A Players” is what we say. Avoid this classic “Pennywise and Pound foolish” faux pas and get your company the smartest and best performing recruiters possible.
- Supply, Demand and The Cost of A Bad Hire
The demand for top talent has never been so competitive and the technology available in 2018 to help recruiters identify this talent is disruptive to all forms of recruiting as we knew it. (And by that, we mean the mundane, manual, tedious and time-consuming type of recruitment).
Chatbots, AI interviewers, sourcing platforms, personality assessments, you name it! All these apps fill a nook or cranny of the HR requirement space and we can no longer determine our ROI simply on whether or not you made a hire. In his blog, “Is Average Cost-Per-Hire Still a Relevant Metric for Developer Hiring?” Rich Moy says “To do it right, you have to track performance metrics like quality of hire and return on investment.”
Moy sites an excellent point – what’s a step further than calculating quality vs. whether or not you made the hire…you need to look at the cost of a bad technical hire. In Rachel Ferrigno’s blog, “The Startling Cost of Losing a Developer”, we discover that 1 bad hire can cost “tens of thousands of dollars to 1.5 to 2 times their annual salary.”
Imagine adding this to your ROI calculations! Be careful that you aren’t just making the hire to justify subscribing to a sourcing tool…you may end of spending more in the long term.
- Stop Trying to Make Outdated Methods Work
Other ways employers find themselves being “penny wise and pound foolish” with their recruitment investments is relying on outdated job boards.
Fast Company posted an article called “How Employers are Wasting Time and Money To Recruit New Hires,” explaining that since 2016, candidates are relying less on finding new opportunities via a job board, yet employers increase investments here.
We are huge on targeting only passive job seekers, given their top skill level nature. This type of talent (and really the only kind of talent you should care about to make impactful hires) are not going to be the individuals submitting their resume to job boards.
- Create A Company-Specific ROI Formula
For the record – while we are saying that calculating ROI should be more than just a standard cost-per-hire analysis, we are NOT recommending you to disregard the value of your tools and what they do for your company.
As a starting point, you can always rely on this basic formula from the HR Bartender:
“CPH = (External Recruiting Costs + Internal Recruiting Costs) / Total Number of Hires for a Time Period
External recruiting costs include agency fees, advertising, job fairs, college recruiting, relocation, etc.
Internal recruiting costs include salary and benefits for everyone involved in the recruiting process as well as recruiting software, etc.”
While we often see employers use this, we encourage them to also evaluate further, considering metrics like cost per submission and interview, as well as the value of the gig and its level of specialty.
In Glassdoor’s “Calculate Cost-Per-Hire” blog, their team describes this formula and how to build on top of it, considering attrition and candidate quality.
For more information about how to calculate your ROI and recruitment costs, follow this link to view our Reducing recruitment cost infographic!