Tue Nov 21 2023

How to Use Tech Recruitment ROI to Measure Hiring Efforts

Tazeen Fatima
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Recruitment is the backbone of any successful organization. But how do you measure the effectiveness of your recruitment efforts? Enter Recruitment ROI (Return on Investment), a crucial metric that allows you to assess the value of your hiring processes. But knowing what ROI means in recruiting, it's challenging to gauge the effectiveness of your hiring strategies.

In this blog, we'll explore Recruitment ROI and the key performance indicators (KPIs) for measuring it effectively. It will help you to make informed decisions that will reduce costs and enhance the value of your recruitment efforts.

Let’s begin from the basics.

Understanding Tech Recruitment ROI is Crucial

ROI is a method used to check the profitability of an investment relative to its cost. Tech Recruiting ROI is a metric that helps you evaluate your hiring processes' success and efficiency within the technology sector.

It goes beyond counting the number of new hires and delves into the cost-effectiveness and impact of your recruitment efforts. By calculating your ROI on recruitment, you can make data-driven decisions to optimize your hiring strategies.

Why Measuring Tech Recruitment ROI Matters?

1. Offers Cost Efficiency:

In the tech industry, competition for top talent is fierce. Companies often need to divide resources to attract and hire the best candidates. Measuring ROI ensures that these investments are cost-effective.

2. Improves Talent Quality:

Hiring tech professionals who possess the right skills and fit your company culture is paramount. Tech Recruitment ROI helps to check whether your hiring processes are bringing in high-quality talent.

3. Great for Business Impact:

Effective tech recruitment should contribute to the success of your technology projects, innovation, and business growth. Measuring ROI provides insights into how well your hires are aligning with your organization's goals.

77% of talent leaders say their talent acquisition strategies are more focused on company value creation than saving costs.

4. Enables Continuous Improvement:

Without the ability to measure ROI, you may miss opportunities for improvement. Knowing where your recruitment efforts can be more efficient or strategic is crucial in an evolving tech landscape.

5. Helps in Data-Driven Decisions:

Tech Recruitment ROI offers data-backed insights that inform strategic decision-making. It helps HR professionals, hiring managers, and executives make informed choices regarding recruitment budget allocation, strategies and resource allocation.

Key Recruitment KPIs 2023: What to Measure

To measure tech recruitment ROI, focus on the Key Performance Indicators (KPIs) that align with your tech recruitment goals. These metrics check the success of your hiring processes to see if your investments are delivering the desired results.

Let's explore some of the most important recruiting KPIs that should be on your radar when assessing Tech Recruitment ROI:

1. Time to Hire (TTH):

Definition: Time to Hire measures the number of days it takes to fill a vacant position from the moment it's posted.

Significance: A lengthy time to hire can increase project delays and productivity losses. Reducing this metric is often a priority in tech recruitment.

2. Cost-Per-Hire (CPH):

Definition: Cost-Per-Hire calculates the total expenses associated with hiring a new tech employee, including advertising, agency fees, and internal resources.

Significance: Lowering CPH without compromising the quality of hires is a common objective. It helps ensure that recruitment expenses are sustainable.

How to calculate cost per hire (CPH)? According to the Society for Human Resource Management, the formula for calculating the average new hire cost is: total recruiting costs, which include internal and external recruiting costs divided by the total number of hires during the specific time frame.

How to calculate cost per hire

Here's a breakdown of the components of the formula:

  • Total External Costs: These are the expenses incurred while hiring a new employee that are external to your organization. They typically include expenses such as:

    • Advertising and job posting fees

    • Recruitment agencies' fees

    • Background check and predictive hiring assessment costs

    • Travel and relocation expenses for the candidate (if applicable)

    • Any other external hiring-related costs

  • Total Internal Costs: These are the expenses incurred by your organization internally while conducting the hiring process. Internal costs can include:

    • Salaries and benefits of HR staff involved in the hiring process

    • Costs associated with conducting interviews (e.g., interview room rental, video conferencing tools)

    • Costs of internal training or orientation for the new employee

    • Administrative expenses related to paperwork and processing

  • Total Number of Hires: This represents the total number of new employees hired during a specific period. This can be a monthly, quarterly, or annual figure, depending on your organization's preference.

For example, if your organization spent $10,000 on external costs, $5,000 on internal costs, and hired 15 new employees in a given month, your CPH would be:

CPH = ($10,000 + $5,000) / 15 = $15,000 / 15 = $1,000 per hire

This calculation will give you the average cost to hire each new employee during the specified period. It can be a valuable metric for assessing the efficiency and cost-effectiveness of your hiring process.

3. Quality of Hire (QoH):

Definition: Quality of Hire assesses how well a newly hired tech professional fits their role and contributes to the organization's success.

Significance: Beyond quantity, the focus is on hiring tech talent who are skilled, adaptable, and aligned with your company's values and goals.

4. Source of Hire:

Definition: Source of Hire tracks where your tech hires come from, such as job boards, referrals, social media, or direct applications.

Significance: Knowing the most fruitful channels for recruiting tech talent helps optimize your sourcing strategies and allocate resources effectively.

5. Offer Acceptance Rate:

Definition: Offer Acceptance Rate measures the percentage of tech candidates who accept job offers extended by your organization.

Significance: A low acceptance rate might indicate issues with the job offer or the candidate's experience, impacting your ability to secure top tech talent.

6. Retention Rate:

Definition: Retention Rate evaluates the percentage of new tech hires who remain with the company for a specified period, indicating the effectiveness of your onboarding and retention efforts.

Significance: When candidates have unrealistic expectations that don't match the job requirements, they leave the position soon. This leads to a high turnover rate, disrupting productivity and extra recruitment and training costs for the employer.

To prevent this, employers should maintain transparent communication during the hiring process. They should ensure candidates fully understand the role's expectations, responsibilities, and potential challenges. This will improve talent retention and contribute to a more positive work environment for everyone involved.

7. Hiring Manager Satisfaction:

Definition: Collect feedback from hiring managers to gauge their satisfaction with the tech recruitment process.

Significance: Happy hiring managers are more likely to actively engage in the recruitment process, provide timely feedback, and contribute to successful tech hires.

8. Candidate Experience:

Definition: Candidate Experience is one of the crucial recruiting metrics that measure the satisfaction and impressions of tech candidates throughout the recruitment process.

Significance: A positive candidate experience can enhance your employer brand, making your organization more appealing to tech talent.

Calculating the Candidate Net Promoter Score (NPS) is a way to measure the overall satisfaction and loyalty of job candidates who have interacted with your organization during the hiring process. The Candidate NPS is based on a simple survey question that asks candidates to rate, on a scale of 0 to 10, how likely they are to recommend your organization as a potential employer to others. 

Here's how to calculate Candidate NPS:

Survey Your Candidates:

After the candidates have gone through the entire hiring process, send them a survey asking the following question:

"On a scale of 0 to 10, how likely are you to recommend our company as a potential employer to others?"

Categorize the Responses:

Based on their responses, categorize candidates into three groups:

1. Promoters (score 9-10): These are highly satisfied candidates who are likely to recommend your organization.

2. Passives (score 7-8): These candidates are satisfied but not overly enthusiastic.

3. Detractors (score 0-6): These candidates are not satisfied and may even share negative feedback.

Calculate the Candidate NPS:

Subtract the percentage of Detractors from the percentage of Promoters to get your Candidate NPS score. The formula is as follows:

Candidate Net Promoter Score = (Percentage of Promoters - Percentage of Detractors) x 100

For example, if 30% of respondents are Promoters, 50% are Passives, and 20% are Detractors, the calculation would be:

Candidate NPS = (30% - 20%) x 100 = 10%

Your Candidate NPS can range from -100 to +100. A positive Candidate NPS is a good sign, while a negative score indicates room for improvement.

A higher score means higher candidate satisfaction and a greater changes of them recommending you to others.

9. Employee Performance:

Definition: Evaluate how well your new tech hires perform compared to established employees.

Significance: This metric offers insights into the long-term impact of your tech recruitment efforts on the organization's success.

10. Revenue per Employee:

Definition: Calculate the revenue generated by each tech employee, demonstrating the contribution of your tech hires to the company's financial performance.

Significance: A high revenue per tech employee ratio is indicative of the value your tech talent brings to the organization.

By consistently measuring and analyzing these most important recruiting KPIs, tech companies can gain a comprehensive view of their recruitment effectiveness and make informed decisions to optimize their hiring strategies. In the following sections, we'll delve into how to use these metrics to calculate and interpret Tech Recruitment ROI.

How to Calculate Recruitment ROI?

To calculate ROI on Recruitment, use the following Recruitment ROI formula:

Recruitment ROI (%) = [(Gain from Investment - Cost of Investment) / Cost of Investment] x 100

This recruitment ROI calculator formula takes into account both the value your new hires bring and the cost associated with recruiting them.

How to calculate Recruitment ROI

Here's how you can calculate recruitment ROI step by step:

i. Determine the Gain from Investment:

Calculate the value or benefits that result from your recruitment efforts. This can include factors such as increased revenue, cost savings, or any other measurable impact.

For example, if you hired sales representatives, you might calculate the increase in sales revenue directly attributable to those hires.

ii. Determine the Cost of Investment:

This includes all the costs associated with your recruitment efforts. These costs can be both direct and indirect and may include:

  • Advertising and job posting fees

  • Recruitment agency fees

  • Background check and pre-employment testing costs

  • Travel and relocation expenses for candidates

  • Salaries and benefits of HR staff involved in recruitment

  • Costs of conducting interviews (e.g., interview room rental, video conferencing tools)

  • Administrative expenses related to paperwork and processing

  • Training and onboarding costs

  • Any other recruitment-related expenses

iii. Plug the values into the formula:

  • Subtract the Cost of Investment from the Gain from Investment

  • Divide the result by the Cost of Investment

  • Multiply by 100 to express the ROI as a percentage

For example, you spent $50,000 on recruitment efforts, including advertising, agency fees, and HR staff salaries, and as a result of these efforts, your company generated an additional $150,000 in revenue directly attributed to the new hires.

ROI = [($150,000 - $50,000) / $50,000] x 100 = ($100,000 / $50,000) x 100 = 200%

In this example, your recruitment ROI is 200%, which means that for every dollar invested in recruitment, you earned $2 in return.

This means your recruitment efforts have generated more value than the cost of those efforts, which is a desirable outcome. It's important to track recruitment ROI to assess the effectiveness of your hiring strategies and divide resources efficiently.

How to improve ROI on recruitment rate

Improving the Return on Investment (ROI) on recruitment efforts involves optimizing your hiring processes and strategies to ensure that you get the best possible results while minimizing costs. Here are several strategies to help you improve your ROI on recruitment:

Clearly Define Job Requirements:

Ensure that your job descriptions are accurate and specific. This helps attract candidates who are a good fit for the position, reducing turnover and improving productivity.

Use Employee Referral Programs:

Encourage your current employees to refer potential candidates. Employee referrals often lead to better hires, and they can reduce recruitment costs.

Leverage Social Media and Employer Branding:

Use social media platforms and other online channels to promote your company's culture and values. A strong employer brand can attract more qualified candidates and reduce the time it takes to fill vacant positions.

Utilize Applicant Tracking Systems (ATS):

ATS software can result in a more cost-effective and efficient recruitment process. It helps you manage candidate data, automate communications, and track the progress of candidates through the hiring pipeline.

Implement Pre-screening and Assessment Tools:

Use pre-screening and assessment tools to test candidates' expertise early in the process. This can help you identify top candidates and reduce time spent on unqualified applicants.

Streamline the Interview Process:

Make sure you have a well-structured interview process for better efficiency. Conduct panel interviews if necessary to reduce the number of interviews per candidate and minimize time to hire.

Consider Internal Talent:

Check if there are qualified candidates in your organization who can be promoted or transferred to the open position.

Negotiate with Recruitment Agencies:

If you use recruitment agencies, negotiate their fees and terms to ensure you're getting the best value for their services. Compare the cost of agency fees to the cost of doing the recruitment in-house.

Analyze Recruitment Metrics:

Continuously monitor and analyze recruitment metrics such as cost per hire, time to fill, and quality of hire. Use these metrics to identify areas for improvement in your recruitment process.

Invest in Training and Onboarding:

A well-structured training and onboarding program can help new hires become productive quickly. This reduces the time for them to contribute positively to the organization.

Track Employee Turnover:

High turnover can be costly. Analyze the reasons for turnover and work on strategies to improve retention. You can do so by offering career development opportunities and competitive compensation packages.

Measure the ROI Regularly:

Continuously assess the ROI of your recruitment efforts. This will help you identify which strategies are working and where adjustments are needed.

Benchmark Against Industry Standards:

Compare your recruitment metrics and ROI against industry benchmarks to see how you stack up and where you can improve.

Improving ROI on recruitment is an ongoing process that requires regular evaluation and adjustment. By implementing these strategies and continually fine-tuning your recruitment processes, you can achieve better results and greater cost-effectiveness in your hiring efforts.

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Frequently Asked Questions

What is the ROI of recruitment?

Return on investment (ROI) is an economic indicator used to evaluate employee productivity and profitability. HR ROI reflects a person's value at work compared to the cost of hiring and retaining a candidate.

How do you calculate ROI for recruitment?

Calculate the cost of employee lifetime value (advertiser fees, employee pay and benefits, relocation costs, agency fees, etc.) by the hiring number.

What is the role of ROI in managing business performance?

ROI is used as an indicator of the effectiveness of several investment strategies in business. ROI measures the value of an invested asset based on its cost.

How is the recruitment success rate calculated?

To calculate the success ratio, divide the number of hires who perform well by the total number of hired candidates. A high success ratio means that most of the hired candidates perform well. However, a low ratio means that recruiters must fine-tune their selection process.

Why recruitment and retention is important?

Recruitment is important to bring in the right talent, like assembling a strong team. Retention matters because keeping skilled employees avoids the hassle and cost of frequent hiring, ensuring a stable and productive workplace.

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