This story is a guest contribution from ZipRecruiter, a leading online employment marketplace that actively connects people to their next great opportunity.
Many talent acquisition teams measure the performance of their recruiting efforts with metrics like applicants-per-opening, cost-per-click, cost-per-application, and cost-per-hire. But fixating on cost doesn’t reflect the actual value their efforts provide to the business. New metrics that quantify recruitment ROI, or return on investment, however, could help.
Measuring against cost-focused benchmarks reinforces the widespread perception that talent acquisition is a cost center. And when your function is considered a cost center by the executive team that allocates budgets, you’re not likely to get the resources you need to recruit and hire effectively. So how do you get executive buy-in for tools that can help you make quality hires?
Recruitment ROI gives you a seat at the table
ROI is a metric that refers to what the business gets back for every dollar it invests in recruiting. That’s not to say that cost metrics aren’t valuable – they’re usually helpful as leading indicators before ROI metrics have time to bake in. But from a strategic standpoint, they won’t put you in a firm position to make requests of other departments.
ROI is effectively the other side of the coin from recruitment cost metrics: it shows the business value created by spending money rather than simply reflecting the money you spent. Today’s more mature talent acquisition teams are showing their C-suites how they drive revenue the same way as their colleagues in sales and marketing.
When empowered with the right model and data, talent acquisition teams can reposition from a cost center to a value-creating function. By demonstrating recruiting ROI, CHROs and talent acquisition leaders can reframe the discussion, demonstrate their team’s value to the organization, and make the case to leadership for investing further in recruitment.
Calculating recruitment ROI
At its core, recruitment ROI is a straightforward metric to calculate: divide the return you get on a hire by the costs—or, in other words, the investment—of making that hire. Let’s talk more about what we mean by both “return” and “investment.”
Calculating your investment
Let’s start with the denominator. Talent acquisition’s investment most often comes in the form of sourcing costs and recruiter time—at least, that’s where the bulk of your spending will be. Sourcing costs could include the fees job boards collect to advertise open roles to candidates, the continuous costs of a resume database, or the expense of participating in a career fair or running a hiring event.
Recruiter time is also important to measure because different talent acquisition strategies require varying degrees of recruiter investment. Recruiting events demand travel and all-day presence on site, while a resume database is a resource recruiters will use intermittently—generally at the outset of every open requisition. Additional recruiting expenses might include commission on external recruiting agencies, fees for background checks, pre-employment testing services, employee referral bonuses, and relocation expenses.
Your own cost list will be based on your recruiting resources and hiring process. The point is, to calculate any meaningful ROI metrics, you need to know the dollar value you’re investing into hiring.
A simple formula for calculating return: annual salary
Once you’ve calculated your investment in hiring, you need to figure out the return that the recruiting team generates for the business. Simply put, return is the value that your hires bring to the organization. But how do you assign a dollar amount to that value?
In some cases, value can be directly attributed to revenue. If a dentist isn’t in the office, they can’t see patients, and the practice misses out on those earnings. When a quota-carrying sales rep isn’t on the floor, they can’t drive that revenue for the business. These are easy examples of how to value filling an open role.
But what about the types of roles that almost all companies need but where revenue impact isn’t immediately obvious (e.g., software engineers or customer service reps)? To show a hire's relative business value, we can use salary as a simple way to differentiate between roles and reflect how an organization values the functions it’s hiring for.
Putting it together with examples
Let’s say we have two recruiters—Amy and Ben—who spent $1K each in terms of time and money to make their respective hires. In other words, their recruiting costs to the business were equal. But Amy hired two engineers whose average salaries are $100K/year, while Ben hired five customer support reps whose average salaries are $30K/year.
To determine the total return to the business for each recruiter, we multiply the number of hires each recruiter made by those new hires’ salaries, which is effectively the sum of their salaries: $200K for Amy (2 hires × $100K), and $150K for Ben (5 hires × $30K). We then divide those numbers by the investment ($1K for each). In other words, the equation is # of hires made × average salary of those hires ÷ total cost to hire for those roles.
The result is the recruitment ROI. For every $1 invested, Amy drove $200 in value, and Ben drove $150 in value. As a talent leader, you can use these numbers to compare recruiter efficiency across your team, or you can take the average of your team’s ROI ($175) to your executive meetings. You’ll have a much more engaging conversation with leadership if you tell them your team drives $175 in value for every dollar the business invests in recruiting (an ROI of 17,400%!) than if you say you spent $2K to make your hires this quarter. Cost-per-hire would give us different conclusions and possibly lead to very different resourcing outcomes.
Adding multipliers to your recruitment ROI calculation
While salary is a simple way to differentiate ROI between roles, it doesn’t always capture the total value a role brings to the organization. Adding multipliers for critical revenue-blocking roles can help represent a role’s true impact on the business.
Let’s say a restaurant chain is opening a new location and needs to hire roles across functions. Onsite workers such as cooks and wait staff are critical, as the restaurant can’t open its doors to customers until those positions are staffed. On the other hand, corporate employees in the marketing and finance departments are important—but they’re not directly blocking revenue. These roles sustain the business, but the restaurant can open its doors without them.
Yet the restaurant employees’ salaries are lower than the corporate employees’ salaries, which doesn’t reflect their impact to the business, as business value doesn’t always correlate to salary. Let’s say we must hire three restaurant employees to open our doors. These employees have an average salary of $45K. At corporate, we also have two open roles to help sustain the business, with an average salary of $75K.
To show their distinct business value, we’ll use a multiplier for our critical hires. Maybe we determine that our critical roles are three times more valuable to the business than our sustaining roles are, so we use a multiplier of three. (Note: As you apply this methodology to your own organization, choose a multiplier that represents the relative impact those critical roles will have on your business over all other roles.)
Next, we use the same math we used above: the sum of new hires’ salaries divided by the total cost to hire for those roles. If our three critical roles cost $1,500 to hire with a sum salary of $135K, the recruitment ROI is $90 for every $1 spent to hire them ($135K ÷ $1.5K). And if our two sustaining roles cost $900 to hire with a sum salary of $150K, our ROI is $167 for every $1 spent to hire them.
Finally, we apply our multiplier to represent the ROI of our critical, high-impact roles more accurately. Although their salaries are lower, our restaurant employees bring more value to the business right now because we can’t drive revenue without them. So, we multiply our current ROI number by three and find that those critical roles provide almost two times the ROI as our sustaining roles do.
No matter your business, there are a subset of roles that are critical game-changers separate from the sustaining roles that keep your organization afloat. A certain number of nurses will be necessary before a hospital can admit incoming patients. A dentist’s office without a hygienist will suffer revenue losses. A technology company without a software architect to scale its platform will see business-critical growth revenue blocked. Determine what those critical roles are for your organization and choose a multiplier that best represents the additional value those hires will bring to your business. Then, you can calculate the relative value those roles provide back to the company once filled.
Reframing the recruiting metrics conversation
Hiring requires spending; that’s inevitable. But reframing these costs as investments and showing the return on every dollar will give leadership a measurement of the recruiting department’s true business value. Talent acquisition leaders can also use recruitment ROI metrics to ensure leadership understands how the department delivers value rather than incurs costs. This will fundamentally change your conversations for the better.
