Two decades of employment data have highlighted the fact that good hiring choices are about so much more than instinct. Studies have uncovered that gut feelings are often plagued by biases, and that recruiting ROI can actually be calculated. This math that has allowed recruiters and hiring managers to quantify their own worth as well.
When an employee’s return on investment (ROI) can be measured, those in hiring positions are able to calculate and track the effectiveness of their choices; numbers that then open the door to improvements in hiring practices moving forward.
Don’t believe us? Research has found that engaged employees outperform those who are less engaged by 202 percent—adding value to hires who aren’t just capable of doing the job, but who are actually passionate about the work. Employee engagement has also been linked to higher shareholder returns and fewer safety incidents.
Learn how to dramatically improve recruiting ROI.
Unfortunately, not all hires are engaged in their work. In fact, Forbes once reported that roughly half of all new hires reveal themselves to have been bad choices within 18 months of being hired. This is especially problematic, seeing as a bad hire can cost a company up to $50,000.
So what other metrics go into calculating ROI—and how can an understanding of those numbers improve the quality of your hires?
Measuring Recruiting ROI
There are a lot of potential factors that can go into an employee’s ROI:
- Recruitment time
- Ramp-up time (training to full productivity)
- Job performance
- Cultural Fit
- Manager Satisfaction
- Employee engagement
- Revenue generated (for those in sales)
The list can go on and on, and ultimately comes down to the type of job being performed. In order to calculate ROI, you need to first determine which factors are most important to a certain role.
Let’s say you are calculating the ROI for an administrative position. You might decide that ramp-up time, job performance, cultural fit, manager satisfaction, and employee engagement are all important factors to the overall ROI.
You should create metrics to assist with applying a numerical value to each of those factors. If you’re using a 1-10 scale, for instance, ramp-up time could be scored as a score depending on how many days or weeks it takes the new employee to be fully functional in their new roles.
The ramp-up time for every administrative position could be scored on this same scale, and different variations could be created for positions requiring more training time. Additionally, measuring onboarding performance may serve as an early indicator of candidates who are in the wrong role.
By applying a numerical value to each of the factors you are measuring, you would then calculate ROI using the following formula:
(ramp-up time + job performance + cultural fit + manager satisfaction + employee engagement)/N (the total number of factors being evaluated)
N, in this case, would be 5.
With your predetermined metrics, let’s say you come up with the following numbers for each of the factors being evaluated:
- Ramp-up time = 8
- Job performance = 8
- Cultural fit = 7
- Manager satisfaction = 7
- Employee engagement = 8
In this case, you’re formula would then be:
(8 + 8 + 7 + 7 + 8)/5 = 7.6
This employee would have an ROI of 7.6.
Applying Recruiting ROI to Hiring Strategy
Of course, calculating ROI is only half the battle. What do you do once you have those numbers, and how can that numerical value help you to improve hiring in the future?
The beauty of ROI is that it’s a truly quantifiable measure of an employee’s overall value to the organization. This value can be calculated and updated throughout their employment to better understand which factors are contributing to long-term increases in Recruiting ROI. By calculating the ROI for new hires within three to six months of bringing them on board, however, those in hiring positions can also evaluate the job they are doing in recruiting, hiring, and onboarding.
If your ROI is averaging 7 or less for new hires, there is definitely room for improvement in your hiring practices. Perhaps you want to spend some time comparing your higher ROI hires to those who are ranking lower. What was different about the hiring process with these employees? What can you learn from the choices that were made?
Use Recruiting ROI to Scale your Hiring Impact
Another way ROI can prove valuable is that it allows you to pinpoint the types of hires you might want to replicate. Let’s say you hired someone six months ago who has an ROI of 9. You need to fill a similar role now, and you’d like to replicate that success.
Censia’s Talent Intelligence can identify potential candidates who mirror that employee’s credentials and career trajectory.
This also allows you to put in the effort to improve your ROI score over time. This shows your higher-ups how the new hiring methods you’ve implemented (and perhaps the software you’ve brought on board to help) have produced a quantifiable value for the company.
People tend to get anxious about anything requiring new math or tracking. But once you’ve established a system for calculating ROI, you’ll find the process to be seamless and the insights to be invaluable.