How Do You Determine the Return on Investment in Recruitment?

Determining the return on investment (ROI) and the success of a recruitment campaign requires an analysis of a number of metrics. To evaluate the effectiveness of your recruitment efforts, a few key performance indicators (KPIs) should be taken into account. These include cost per hire, time to hire, and quality of hire, which can all be used to calculate the return on investment of a recruitment campaign. Additionally, the percentage of successful recruitment can be determined by tracking the number of hires that remain with the organisation for a specified period of time. By utilising these metrics, employers can gain a better understanding of the efficiency of their recruitment efforts.

In search of explanations for the above issues? Enter the waters.

How do you calculate return on investment while hiring?

Return on Investment (ROI) is a metric that is used in Human Resource Management to measure a potential employee’s capacity for positively impacting the overall financial success of a business. The return on investment in recruitment is the difference between the value of the employee to the company and the cost of securing and retaining them. By accurately assessing the ROI of a potential employee, businesses can make informed decisions about the value of their recruitment investments.

Return on investment (ROI) in hiring: how do you figure it out?

The return on investment (ROI) for recruiting is determined by dividing the total value of an employee to the company over the course of their employment by the cost of acquiring and retaining that employee. This calculation can be expressed either as a percentage or a ratio, providing a measure of the efficiency and efficacy of a company’s recruiting process.

How can you know whether your recruiting efforts are paying off?

  1. What was the percentage of those who left in the first year?

    It takes time for a new employee to become fully productive. However, if they depart inside the first year, it counts as first-year attrition.

    If an individual leaves your organisation within a year of joining, you will not be able to recoup the costs associated with their recruitment. Subsequently, the cost of hiring new personnel will negatively affect your bottom line.

    Candidates who are presented with expectations that are not in line with the duties required for the job tend to leave their positions within their first year of employment. Additionally, inadequate performance can be the outcome of hiring a person who is not suited for the role.

    So, make sure the applicant knows exactly what is expected of them and that they have all they need to succeed in the role.
  2. Analyse the rate of offer acceptance

    The Offer Acceptance Rate refers to the number of applicants who ultimately take a position with your company (OAR).

    When an applicant completes the entire recruitment process, including interviews, exams, and other interactions, and ultimately chooses not to accept the position offered by the company, it results in a significant waste of time and resources. This not only leads to a decrease in the Overall Acceptance Rate (OAR), but also an increase in operating expenses.

    The overall acceptance rate (OAR) of a company’s recruiters can be used as an indication of their competency. A low OAR is a sign of inadequate performance, as it suggests that the recruiters are not able to effectively assess a candidate’s motivations, needs, and main concerns before making a job offer. Therefore, the OAR can be seen as a reflection of the recruiters’ capability.
  3. Study the Percentage of Submitted Applications (ACR)

    A recent poll found that over 60% of respondents do not complete their applications to the end because they are too lengthy, boring, or complicated.

    The number of applicants for positions within our company is a Key Performance Indicator (KPI) that should be monitored closely. This KPI measures the percentage of individuals who begin the application process, successfully complete it, and submit it for review. Measuring this number over time enables us to gain insight into the effectiveness of our recruitment strategy.

    Hiring managers may make better use of career page and job board metrics with the aid of ACR tracking.
  4. You must evaluate potential hires to find out how good they are.

    This key performance indicator is essential for evaluating a new hire’s potential for success.

    It is essential to assess the new hire’s impact on the company’s long-term success and the value they bring to the organisation. As it is challenging to evaluate such factors as job performance and cultural alignment in numerical terms, this assessment is highly dependent on the individual and the organisation in question.

    The percentage quality of a hire is calculated as follows: Quality of Hire (in %) = (Indicator (in %) + Indicator (in %) / Number of Indicators
  5. Think About How Long It Will Take To Hire (TTH)

    Measuring the time from the point of adding an applicant to the hiring pipeline to when they accept a job offer is a key performance indicator that is indicative of the amount of time and resources that have been invested into the recruitment process. Consequently, this metric is a vital part of the hiring process.

    When calculating the duration of the hiring process, it is important to take into account the date that the position was first advertised. Start with Day 1 and then count backwards from the date that an offer was accepted, deducting the amount of time it took for the applicant to go through the recruitment pipeline.

    As an example, a candidate for the advertised position submitted their application five days after the job posting went live. After a further fifteen days, the candidate accepted a job offer. This demonstrates that the entire process of employing the candidate took fifteen days.

    Hiring timeframe = date applicant accepted offer – date candidate entered pipeline.
  6. It’s Important to Get an Idea of How Much It Will Cost to Hire New Employees (CPH)

    The cost per hire is the average amount an organisation spends to fill an open job.

    This financial indicator can be used to set a realistic budget for recruitment and to evaluate the effectiveness of past expenditures. Utilising recruitment software can be beneficial as it can help to reduce the costs associated with search firms and external recruiters, as evidenced by the cost per hire.

    The American National Standards Institute and the Society for Human Resource Management developed a method for calculating the average cost of a new employee. To do this, the total amount spent on both internal and external advertising should be calculated and then divided by the number of individuals hired.

    Cost per Hire (CPH) = (Total Recruiting Expenses Including Advertising) / Total Number of People Hired

    Here’s an example that should help you understand how to determine the return on investment in your recruiting efforts.
    • XYZ Company is planning to hire 100 individuals over the course of the next 12 months, with a salary of $100,000 each. This will represent an overall investment of more than $10 million.
    • With 100 people contributing $240,000 each, the total variable profit contribution would be $24,000,000.
    • The implementation of an additional 100 staff members, with an increased productivity of 20%, would result in an annual profit increase of $4.8 million. Furthermore, this would generate an additional $20 million in variable profit over the span of four years.
    • According to reports, the cost of recruiting 100 A-players totals approximately $3 million. This figure includes a $2 million salary increase over a four-year period, the expense for four new recruiters in the initial year, four additional LinkedIn Recruiter licences for a one-year duration, and the cost of training recruiters and hiring managers to effectively implement performance-based recruiting.
    • If you invest $3 million and generate $20 million in profit over a four-year period, your return on investment (ROI) will be greater than 600 percent with a payback period of three months.

What This Means, Ultimately

Despite the fact that not everyone is a fan, mathematics can be an enjoyable activity. If you’re looking to streamline your recruitment process, take advantage of modern recruitment tools such as Arya by LeoForce, SelectHub, Workable, Trakstar Hire, Bamboo HR, iCIMS, JobVite, JobAdder and BullHorn. These resources provide an easy alternative to performing calculations to measure recruitment return on investment, which would require the use of complex mathematical equations.

If you’re looking for an experienced software development team to complete your projects to the highest of standards, Works is the ideal choice for you. We provide access to an unparalleled selection of over 1.2 million highly-skilled engineers, all of whom possess extraordinary technical and communication capabilities. Our top 1% of engineers are sure to meet your exact needs and expectations, ensuring that you receive a high-quality result. Reach out to us today to learn more about how we can help you with your software development needs.

FAQs

  1. How does one determine the percentage of successful recruitment?

    The success rate of a company may be calculated by dividing the number of productive recruits by the total number of hires. A high success rate is indicative of the fact that the majority of employees are meeting or exceeding expectations, while a low rate suggests that hiring managers need to be more discriminating in their selection process.
  2. Which metrics do you use to evaluate how well you’re able to attract new employees?

    Key performance indicators (KPIs) to consider when gauging recruiting success include:
    • Retention rates drop down in the first year.
    • Acceptance of Offers
    • Ratio of Successful Applications
    • Qualifications of prospective employees
    • It is now time to make some new hires.
    • Expenses incurred for each new employee
    • Expertise of the Applicant

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