In today’s digital age, everyone’s well aware of the value of business software. But when it comes to reporting just how valuable that software is, how do you measure it? With some solutions it’s easy to gauge. Finding the ROI of marketing automation and CRM platforms involve simply looking at the number of conversions, leads and customers you gained before and after adoption. But with some systems, such as with recruiting software, the ROI is more difficult to quantify.
To be honest, you can’t fully quantify the value of certain software. There isn’t an exact metric to gauge how effective it is or exactly how much more productive you are. This is especially true for HR and recruiting software. No single metric dictates the best talent acquisition or the most efficient recruitment process. But there are metrics you can use that give an idea of the added value; numbers that show what has or hasn’t improved.
These are the numbers that you can show your higher-ups when it comes time to assess your recruiting software. These are the numbers that show whether or not you made the right choice of vendor, and/or if you’re using it to its full potential. When the time comes to report on the ROI of your recruiting software, look to these metrics:
Highly Qualified Candidates
The goal of talent acquisition is to hire the candidates that not only perform the best, but embrace your culture. When trying to find a metric to gauge your recruiting software’s ROI, a tempting number is the number of candidates you get for each position. If you get more candidates, you’re getting good value, right? Not necessarily. What’s more important than the overall number of candidates is the number of quality candidates.
Ronen Shetelboim at Jobvite compares recruiting to marketing, including equating candidates to leads. A good marketing strategy focuses on getting conversions from individuals who have the best chance of becoming customers. You don’t just want leads, but highly qualified leads. The same is true for candidates. You have the best chance of hiring the right employee when you get applications from 20 highly qualified candidates, not 100 low- to medium-qualified ones. After all, the only applications that matter to recruiters are the ones that turn into interviews (sorry job seekers).
Therefore, the first metric to measure your recruiting software ROI: the number of quality candidates applying. Or as Shetelboim dubs them: Recruiting Qualified Candidates, or RQCs. Comparing the number of candidates suited for interviews before and after adoption reveals the quality of candidates your recruiting software brings in. If the number of RQCs is higher with software, as it should be, you know your software is providing value.
As we touched on earlier, every recruiter’s goal is to bring in a candidate for the long haul. One that gets their job done well and contributes to the culture. Why is this important? They tend to stick around longer and continually improve their performance. The longer an employee stays, the more dollar value they provide. Conversely, the higher turnover you have, the more money you’re practically throwing away.
This leads to our second ROI metric: turnover rate. One of the most detrimental aspects of business, especially for small businesses, is turnover. The recruitment process is time-consuming and costly, hence why recruiters use recruiting software. If your company has a high turnover rate, you’re spending unnecessary time and money on interview scheduling, training and onboarding. All of these take time away from your other employees, who could spend it on their regular tasks. In addition, it simply costs money to input new employees’ information, facilitate their benefits packages, and put them through your training protocols. Zane Benefits put together a handy formula to determine the cost of employee turnover, and we have to say, the costs sadden us.
Reducing your turnover rate means you can reallocate the time and money spent on hiring a replacement. It means you’re bringing in the right candidates, making the right hires, and getting great value from your recruiting software.
Side note: use an applicant tracking system, a common component of recruiting software, to find where your best hires come from. Applicant tracking shows you, among other things, where each application originates. Using this information, you can finally find out if job boards bring your best hires, or social media does, or your in-house recruiter. You can then use that information to use the channel more, and hopefully consistently make those great hires.
Cost per Hire
Now we come to a more traditional ROI metric: cost per hire. Cost per hire is a very straightforward and self-explanatory. It’s commonly used by HR departments for this reason, in particular because it’s easy for anyone outside of HR to understand, as Ngan Pham points out.
Cost per hire may be the most important recruiting software metric because it directly affects the bottom line. Especially if you had high costs such as recruitment agency fees before adopting recruiting software, chances are you’ll find a substantial reduction in cost during the evaluation. This is especially important for large and fast-growing organizations that frequently hire new employees. When hiring is a constant occurrence, a low cost per hire can be the difference between a good quarter and a bad quarter.
It just so happens to also be the easiest of the three metrics to quantify. To calculate your cost per hire, all you have to do is divide your total recruitment costs by the number of hires you made. And if you really want to get down in the weeds, you can add the time spent by your in-house recruiters multiplied by their pay.
The cost per hire metric is especially useful for reporting on your recruiting software’s ROI because it puts the value in perspective. If you itemize the costs, you can see everything that your recruiting software replaces. That, in and of itself, provides value.
Using these metrics should give you a great understanding of your recruiting software’s ROI. Using them, you can understand whether or not you’re getting the value you thought you would. And if you find out you’re not getting the value you thought you would, you can fix the problem by either using the software differently or by switching vendors. If only it was always this simple to use ROI to fix business problems.