Recruitment ROI Explained Plus How To Calculate It (in 2024)
Recruitment ROI is an important metric that lets HR professionals calculate if their recruitment process is adding value to an organization — or costing it more money than each new hire is worth.
According to Glassdoor’s research, the average US company spends approximately $4,000 and 24 days to hire a new employee. Do you know what your cost per hire (CPH) is? What about if you are seeing a positive return on your investment? Let’s find out.
Contents
What is ROI in recruitment?
Why should HR track recruitment ROI?
The recruitment ROI formula
Calculating recruitment ROI
What is ROI in recruitment?
In recruitment, return on investment (ROI) measures the effectiveness and value of your organization’s recruitment strategies and activities used to attract, hire, and retain employees.
To calculate ROI, you’ll need to add up the costs associated with the recruitment process, including advertising job openings, recruiter fees, hiring staff hours, and onboarding and training expenses. You’ll then compare these against the benefits gained from the new hires, such as increased productivity, improved job performance, and contribution to organizational growth.
A positive ROI indicates that the recruitment efforts are contributing more value than they are costing, while a negative ROI suggests the opposite.
Why should HR track recruitment ROI?
Recruitment ROI helps organizations assess the efficiency of their hiring strategies, make informed decisions on where to invest in talent acquisition, and identify areas for improvement to optimize recruitment processes and outcomes. It’s an essential metric for ensuring that recruitment efforts align with business goals and provide tangible benefits to the company.
ROI is about more than how much a hire costs, though. Tracking ROI is a great way for HR professionals to measure candidate experience throughout the recruitment process. Remember, what you measure, you can manage (and improve).
CareerPlug’s annual Candidate Experience Report 2024 reveals that 52% of job seekers had declined a job offer due to a poor candidate experience, with most job seekers surveyed rating the importance of the hiring process between 7 and 10. Candidates pay close attention to how a company carries out its hiring process, influencing whether they want to join an organization.
According to the Candidate Experience Research Report, candidate experiences also impact an organization’s employer brand in the market. Over 69% of job seekers will share negative candidate experiences online, and over 82% if the experience was positive.
HR tip
The data is clear: Making positive changes to your hiring process can help you get more candidates to say yes to your job offers.
7 key reasons to track recruitment ROI
Here are seven key reasons why HR professionals should track recruitment ROI:
- Demonstrate value to stakeholders: By presenting concrete figures on the returns of recruitment investments, HR can justify the expenditures to key stakeholders and show how recruitment contributes to the company’s bottom line.
- Align recruitment efforts with business strategy: Understanding recruitment ROI helps you align your talent acquisition strategies with the overall business plan, ensuring that you recruit individuals who will drive the organization forward.
- Achieve cost efficiencies: Monitoring recruitment ROI encourages cost-effective hiring practices. It allows HR to identify which recruitment channels and techniques yield the best value for money, helping reduce unnecessary recruitment spending. The recruitment process can be expensive, especially when you factor in both hard costs, such as advertising job postings and screening candidates, and the soft costs of conducting multiple rounds of interviews.
- Improve time-to-hire: A lengthy recruitment process can result in a longer time-to-hire, impacting your company’s ability to grow and scale. Different benchmarks list various time-to-hire averages. Whether a new hire takes 20 days or 60, the position is vacant, teams are under increased pressure, and productivity suffers. Long hiring processes can also detract candidates or result in talent accepting another position.
- Improve resource allocation. HR professionals can learn to make more informed decisions about where to allocate resources, which helps them prioritize recruitment initiatives that deliver the highest return, ensuring optimal use of time and budget.
- Performance measurement. Tracking the ROI of recruitment activities is a great performance measurement tool for the HR department. It provides a clear metric to evaluate the success of hiring initiatives and the effectiveness of the recruitment team.
- Data-driven decision-making. Recruitment ROI provides data that can be analyzed to make evidence-based decisions. This data-driven approach enables HR to fine-tune the recruitment process, focus on strategies that work, and discontinue those that do not yield favorable results, thereby continuously improving the recruitment process.
The recruitment ROI formula
To determine your recruitment ROI, you will need to track key metrics, the monetary value of new hires, and hard costs. Let’s start with key metrics. Although key metrics do not have a monetary value that will eventually be used in your ROI calculation, they are all areas that you can leverage to improve your overall recruitment process above and beyond tracking ROI.
Key metrics to use
1. First-year attrition rate
New hires generally require a period to acclimatize and perform optimally. If they depart within their first year, this is termed first-year attrition. An early exit by these recruits means your investment in them is lost, accruing additional costs with each new hire and affecting your company’s financial health.
→ Do this: Unrealistic job expectations or a mismatch between the candidate and the position can lead to early resignations or dismissals. It’s important to clearly communicate job expectations during the hiring and onboarding processes and provide the necessary resources to enhance employee performance.
2. Offer acceptance rate (OAR)
This metric reflects the proportion of candidates who accept a job offer from your organization. A declined offer wastes recruitment resources and increases operational costs, particularly after extensive interviewing and testing. A low OAR can indicate issues with the recruitment process and suggest that recruiters may not effectively address the candidates’ goals and concerns before extending an offer.
→ Do this: Ask candidates who decline offers why they have chosen to say no. How many (and why) people reject a position could give you more insights into your recruitment process than how many candidates accept positions.
3. Application completion rate (ACR)
According to SHRM, 92% of people never finish online job applications. Application completion rate (ACR) tracks the number of applicants who begin and successfully submit a job application, which is crucial for optimizing recruitment strategies. If your ACR is low, your application is either too long or too complex.
→ Do this: It’s important to get enough information from a candidate, but you also want to create a smooth application process that is not too time-intensive. Find a balance between what you need to know upfront and what you can test for during the process. For example, asking candidates to provide a short video where they tell you about themselves can be both quick and insightful.
4. Applicant-to-interview ratio
How many candidates typically apply for a position compared to those who are selected for interviews? This is your applicant-to-interview ratio. Tracking it offers insights into the effectiveness of your advertising and screening processes.
→ Do this: Evaluate if your applicant-to-interview ratio is high or low and if you are attracting the right people for the position (and your company).
5. Time-to-hire (TTH)
This key performance indicator (KPI) measures how long it takes from a candidate’s entry into the recruitment pipeline to their acceptance of a job offer. Understanding the time and financial resources dedicated to the hiring process is critical. To calculate TTH, start counting from the day the job role was posted. Subtract the number of days from application to job acceptance. For instance, if a candidate applies seven days after the role is advertised and accepts the offer 21 days after the advertisement, the TTH is 14 days.
→ Do this: Track every metric across the recruitment process. Here’s the formula:
Time to hire = day of job offer acceptance – day of entering the pipeline.
6. Quality-of-hire
This subjective KPI evaluates whether a new employee is a suitable match for the company, contributing to the organization’s long-term objectives. Because it cannot be quantified easily, this metric varies across different companies and positions.
→ Do this: Work closely with each department head and manager to determine what should be measured. You would typically include alignment to company values, how the individual contributes to the team, and how quickly they are onboarded and become productive. Here’s the quality-of-hire formula:
Quality of hire (percentage) = (Performance indicator percentage + Cultural fit indicator percentage) / Total number of indicators
Monetary values of new hires
- Productivity value: The output or work completed by the new hire that contributes to the company’s operations and goals.
- Revenue impact: Direct contributions to sales or revenue through their work, such as closing deals, enhancing product development, or improving service delivery.
- Process improvements: The new hire may introduce efficiencies or innovations that reduce costs or enhance productivity, leading to financial gains.
- Intellectual property contributions: Patents, designs, or proprietary methodologies developed by the new hire that can create long-term revenue streams.
- Client acquisition: The ability of the new hire to bring in new clients or customers, which increases the business’s market share and income.
- Retention and engagement: A new hire’s positive influence on team morale and performance can lead to a more engaged workforce and reduced turnover costs.
- Career progression value: As the new hire grows within the organization, they may take on more responsibilities and contribute to the business at a higher level, thereby increasing their value over time.
- Employer branding enhancement: A new hire’s reputation or expertise can enhance the company’s image, attracting more business or higher-quality candidates in the future.
Costs to measure
- Initial costs of hiring: This includes advertising job openings, recruiter fees, hiring event costs, and the expenses associated with the use of recruitment agencies or external consultants.
- Onboarding and training costs: The investment in training new employees to reach full productivity, including orientation programs, professional training sessions, and any other educational resources provided.
- Replacement costs: If a hire leaves the company, the costs associated with having to repeat the hiring process including the time and resources spent on finding a replacement.
- Productivity costs: The loss of productivity during the period when a position is vacant, as well as the time it takes for new hires to become fully productive in their new roles.
- Technology costs: The expenditure on recruitment software, applicant tracking systems, and other technologies used to streamline the recruitment process.
- Other costs: These might include background checks, pre-employment assessments, relocation expenses for new hires, and any additional administrative costs incurred during the recruitment process.
Determining your cost per hire (CPH)
Your cost per hire is the average of how much money your organization pays to fill a position. This metric helps you plan your recruiting budget since it tracks finances. It is one of the most straightforward costs to calculate as it’s based on hard costs like external recruiters, job advertisements, recruitment software, etc.
→ Do this: Select a time frame, add up the costs associated with recruitment during that time frame, and divide by the number of hires during the same period.
The formula
| CPH = | (external costs) + (internal costs) | |
| Total number of hires in a time period | ||
1. External recruiting costs
External costs could include:
- Advertising expenses
- Recruitment agency fees
- Background check fees
- Skills testing fees
- Travel expenses for candidates
- Relocation expenses for new hires
- Technology costs for applicant tracking systems
- Job fair and career event costs
- Costs associated with social media recruitment
- Legal fees for work permits or visas for international candidates
2. Internal recruiting costs
Internal costs could include:
- Time spent by HR personnel on recruitment activities
- Internal referral program rewards
- Time spent by hiring managers and team members on interviews
- Training for the recruitment team
- Opportunity costs of diverting resources from other projects
- Onboarding and training costs for new hires
- Productivity loss during vacancy periods
- Administrative costs related to recruitment processes
- Technology costs for managing internal recruitment systems
- Costs associated with internal communication and promotion of vacancies
Calculating recruitment ROI
Once you have your net benefits (also known as your total value of hires) and total costs, you can work out your recruitment ROI.
The formula
| Recruitment ROI = | (Total value of hires − total cost of recruitment) | x100 | |
| Total cost of recruitment | |||
The recruitment ROI formula in action
If net benefits (increased revenue, better profit, better team productivity, etc.) add up to $9 million, and you spent $6 million on your recruitment strategy, including advertising costs, assessments, and agency fees, your formula would look like this:
[(9 – 6)] / 6] x 100 = 50
In this case, your ROI is 50%.
However, if net benefits add up to $8 million, and you spent $4 million on your recruitment strategy, your formula would look like this:
[(8 – 4)] / 4] x 100 = 100
Your ROI is now 100%, which is excellent, and a clear indication of how every cost-saving and streamlined process can improve ROI.
Your next steps
- Evaluate the impact of hiring decisions on ROI: Consider a percentage like 50% (and particularly 100%) indicative of a favorable hiring ROI. In cases where your overall expenses exceed the net gains, however, you have a poor ROI that requires immediate attention. It’s crucial not to accept this figure unquestioningly— examine the underlying metrics closely to determine potential areas for improvement.
- Benchmark your ROI within your industry: Regardless of whether your ROI is good or bad, comparing it with the ROI of peers in your industry is an important step. While there’s no universally accepted benchmark for an ‘exceptional ROI’ in recruitment, an ROI that trails behind your closest competitors is a compelling call to action for improvement. If your recruitment ROI is low, it is a good indicator that your key metrics might be poor as well, impacting your candidate experience.
- Identify which recruitment processes can be optimized: Take a deep dive into your recruitment analytics to identify optimization opportunities. For example, a long time-to-hire might be shortened by streamlining manual tasks or even automating tasks. Alternatively, if application completion or job offer acceptance rates are unsatisfactory, it’s worth looking at your overall recruitment strategy.
FAQ
ROI in recruiting stands for return on investment. It measures the efficiency and effectiveness of the recruitment process, evaluating the value that new hires bring to an organization against the costs of hiring them. This metric helps businesses understand how well their recruitment strategies are performing financially, ensuring that the resources invested in attracting, selecting, and onboarding new employees are generating a satisfactory return in terms of productivity, performance, and contribution to organizational goals.
To calculate recruiting ROI, you subtract the total costs of the recruitment process from the total value that the new hires bring to the company and then divide that number by the total costs of recruitment. The formula can be expressed as: Recruitment ROI (%) = [(net benefits – total costs)/total costs] x 100
Costs may include advertising job postings, recruiter fees, and staff time spent on the hiring process, while the value of hires might be assessed in terms of their productivity, contributions to revenue, or other performance metrics.
ROI for hires specifically refers to the financial return that individual new hires bring to an organization compared to the investment made to recruit them. It focuses on evaluating the effectiveness of the recruitment process on a per-hire basis, examining how much value each new employee adds to the company in relation to the costs incurred to attract, select, and onboard them. This metric is crucial for understanding the impact of each hiring decision on the company’s bottom line and for making informed strategic adjustments to the recruitment process.
ROI in HR (human resources) evaluates the overall financial impact of various HR activities and programs on an organization’s success. Beyond just recruiting, it includes aspects such as training and development, employee engagement initiatives, performance management systems, and HR technology investments. HR ROI aims to assess the value that the HR function as a whole contributes to an organization, ensuring that HR practices are aligned with business objectives and are delivering optimal returns on the investments made in the workforce.
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