Calculating recruiting ROI

If you’ve just founded your first business, are in charge of a large and growing business, or if you’re a manager of a team tasked with sourcing new recruits, it’s vital to spend time getting your recruitment right. That’s especially key if you don’t have a minimal budget to play with and not a lot of time to spare. In order to hire smart, you’ll need to determine whether your recruitment efforts are going to be worth the cost.

The good thing is that, no matter what the size of your business or team, the principles of recruitment are the same. You’ll need to apply these to weigh your return on investment (ROI) to work out how much time and money it will take to find that perfect candidate. 💪🏼

How to Calculate Recruiting ROI

To understand if a new hire is worth investing in, you’ll need to justify the spend against a set of key performance measures. These include:

  • Direct cost before hire
  • Time spent to hire
  • New Hire Performance
  • Onboarding spends
  • Retention

It’s important to balance these measures against one another – a quick, cheap hire who performs poorly and leaves quickly won’t have delivered a good ROI. Taking a detailed approach is especially useful if you need to get executive buy-in for recruitment budges.

Let’s look at those measures in more detail:

– Direct cost before hire 💸💸💸

The direct cost before hire is perhaps one of the easiest measures to assess. It concerns the initial upfront cost you’ll need to find to help you get the new recruit through the door. This principally involves the cost of listing your job advert in the relevant places in order to get it seen by the right candidates. Do consider the cost of recruiting tools as well as internal administration and advertising fees. If you’re finding that your advertising costs are expensive, there are other platforms you can use to effectively source new employees.

– Time spent to hire 

Your time is important and no one wants to waste this on dead-end leads, particularly if recruitment is something that you’re handling on top of your day to day responsibilities. This is why you should, essentially, budget your time. If you work out how many hours you’re planning on spending during the whole recruitment process, it’ll give you a better idea on your ROI.

Firstly, calculate the indirect costs, such as, how long it’ll take you to get the job description written and live on the relevant platforms. If this takes longer than expected, look at using resourceful recruiting tools to help use your recruiting time budget better. If you’re outsourcing, it can be helpful to know the amount of people you’d ideally like to interview for the position. As well as this, you’ll need to work out how much time you want to spend screening CVs and sitting in on interviews. This latter bit shouldn’t be ignored. Recruitment can eat into the valuable time of senior – and expensive – colleagues.

Next you’ll need to calculate the number of hours you’re going to spend on these tasks against your hourly rate of pay to put a monetary figure on this time. You’ll quickly find that recruiting is expensive! And, this is even before the candidate has stepped through the doors to sign on the dotted line. This is why it’s a good idea to think about the number of and the type of candidates you want to interview. Only interviewing candidates that meet a set floor standard will guarantee a higher ROI, at a lower risk.

Calculating recruiting ROI

– New Hire Performance

Filling a vacancy is only the beginning. To truly work out if your recruitment efforts are worth the cost, you’ll need to use existing metrics from your existing employees to predict the performance of the new hire.

For example, if you’re measuring an existing sales team you’d look at the amount of business they bring in against their level of experience. So, if a graduate is successfully making 10 sales a week, typically you can predict that a hire of the same experience level will bring in the same amount of transactions.

From analyzing this, you’ll be able to put a monetary value on your new hire and will be able to justify increasing recruitment spends to attract a better quality of hire with a higher level of experience (who could be expected to deliver more).

As well as the performance of your new recruit you’ll need to foresee how the employee will fit into the team. This can be difficult as it will be based on speculation. But, if you look at your interview technique and adapt the questions you ask you’ll be able to better gauge how the candidate will fit into the team and the workplace culture you have created.

It can helpful to ask yourself these questions when decided on a candidate:

  • How quickly will they be able to get up to speed with the job role?
  • How will they get on with the existing team?
  • Can they help to unlock the potential of your existing team members?
  • Will the candidate’s strengths and weaknesses impact the growth of business?
  • Will they be able to help you to offer a new product or service?
  • How likely are they to leave the company within two years?
  • Will they want to join in on cocktail Fridays?

A good example of this is if you were looking to fill a manager position in your sales division. To succeed in this field, your chosen candidate will need to have a certain personality. They’ll need to be a confident go getter, a calm and level-headed manger and a motivator. They should have extensive sales experience and be a natural leader. Identifying these personality traits will boost the quality of the hire help you to get a good ROI from your efforts. Given the importance of getting the right fit – and the likely returns from getting this right – it would be worth investing more in recruitment to make sure you attract the right employee.

– Onboarding spends

Congratulations, you’ve hired the right candidate and they’re successfully on their way to you. But, it may not be time to pop the Champagne corks just yet, as you’re still trying to work out whether this hire was all worth it.

Most onboarding costs can be predicted as you’ll know the direct cost of training and providing equipment and resources to your new employee. What is slightly more complicated, however, is that you’ll need to foresee the loss of productivity that this transition period may cause – including the time senior staff and managers will have to take out of their daily schedule to get the new recruit up to speed. This time might well be higher for less experienced recruits, for example.

Give some thought to your onboarding process and make some changes, if necessary, to improve the the time it takes someone to get up to speed in their job role.

Calculating recruiting ROI

– Retention, retention, retention

Retaining great staff is the key to successful business growth. If your new employee ends up leaving the company after a few months, it’ll not have a positive effect on your ROI.

Starting the recruitment process again in a short period add to the time and money spent on recruitment, leading to a poor ROI.

The longer the employee stays with the business, the more profit you’ll see in return, so do take care when coming up with your retention strategy – creating a positive working environment with an appropriate level of benefits and remuneration. It’s also important to consider this at the start – how long do you expect someone will want to stay with your organisation? A young, up and coming employee who wants to grow under your tutelage and stay and rise through the ranks will prove well worth the investment, whereas someone who sees you as a stepping stone might well move on before you’ve seen the full return on their potential.

Key Takeaways 😉

From the five measures above you can see that there are many important things to consider other than dollar signs to work out if it’s cost effective hiring a new recruit. Here are some key points to take away to help you justify and assess the risk of a new hire:

  • Be honest when calculating the time it’ll take you to find a candidate.
  • If you find its costing you too much to find candidates, look for talent sourcing tools to help speed up the process.
  • Only interview qualified candidates, underqualified applicants are not productive.
  • Tailor interview questions for the specific needs of the job role.
  • Anticipating your candidate’s next move is a good way to improve your ROI.
  • If great employees keep leaving, create a strategy to improve retention.