It is essential to calculate the ROI before investing in an Applicant tracking system (ATS) to ensure that you budget correctly for the software. Making an estimated ROI helps build a business case and provides ground for determining the actual ROI once the purchase is made. To calculate ROI correctly you need to consider both the returns and cost. The returns in this case will be in the form of savings. The top savings would be from:
- Lowering the hiring cost
- Lowering Time spent on the recruitment process
- Lowering recruitment agency spends
- Additional Benefits (specific to individual software)
Find Out Your Recruiting Budget
The first step of determining the recruiting budget is by finding the number of hires. To find a number of hires multiply the total number of current employees by the average number of turnovers.
Then find the average cost per hire by calculating the mean salary and multiplying these numbers to determine the recruiting budget.
Determine the Time Spent on Hiring
Traditional hiring methods have been extremely exhausting. Maintaining spreadsheets, long email chains, etc, tend to consume a lot of hiring managers’ time. There are multiple people involved in hiring, job postings, and other activities relevant to hiring. ATS reduces the time for hiring the candidate with its automated process. To determine the time spent on hiring, track the labor hours for a few weeks and then multiply it to determine the average labor hours spent on track.
Determine the Cost of Bad Hire
Traditional hiring strategies have been extremely exhausting. Maintaining spreadsheets, long email chains, etc, tend to consume a lot of hiring managers’ time. There are multiple people involved in hiring, job postings, and other activities relevant to hiring. ATS reduces the time for hiring the candidate with its automated process. To determine the time spent on hiring, track the labor hours for a few weeks and then multiply it to determine the average labor hours spent on track.
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Estimate the Value of a Good Hire
A good hire means a massive ROI. To calculate the value of a good hire, first, check the year-end financial report for revenue per employee. Then, find the profit margin per hire by multiplying it by 40%. Good hires ultimately help in increasing the productivity of the company. To calculate the ROI on the good hires, the cost of an ATS should be subtracted from the additional value of the high performer.
Estimate Recruitment Agency Cost
Small businesses tend to outsource their hiring activities to third-party professionals. The recruitment agency cost can be calculated by multiplying the average placement fee for each hired candidate and the total number of hires done by the particular recruitment agency. Small businesses can save a lot by integrating ATS into their recruitment process. It also reduces the dependency of these small companies on the businesses.
Estimate External Costs
It is important to eliminate the external cost by choosing a good ATS. Choosing a good ATS reduces the dependency on external agencies and third-party tools.
To understand the total costs of the external recruitment tools- add the average annual amount spent on job portals, the average annual amount spent on agency fees, and the yearly average amount spent on third-party tools.
After that, you can check which ATS can help with it. This can reduce some costs and eliminate other outrights.
Conduct Market Research
ATS cannot accurately estimate the savings on each aspect of recruitment. Market research analysis helps in understanding this saving on every recruitment aspect.
Recruiters should look for companies that are similar in size and scope and have implemented ATS and should use their recruitment costs to determine the cost after implementation.
Take note of the major differences in the hiring process when coming up with figures.
Estimate Savings
To develop a tentative ROI figure, add the hiring cost, track recruitment labor hours and recruitment agency costs, and subtract with figures attained with the market research.
This figure is not the profit but a tool to determine the ATS cost. This is an estimated ROI and may not be the same as the actual one.
ROI Formula for ATS Investment
Once the research is done, and all the calculations have been made, put them together in a compelling case. It should show all of the monetary savings and ATS’s values. ROI of an ATS builds a strong business case.
The four significant focuses to calculating the ROI for an ATS investment are:
- Avoid bad hires- bad hires can be costly. ATS helps in finding more qualified and diverse candidates to choose from. Constant and fair evaluations help in making better hiring decisions.
- Reduce external costs- ATS helps in an automatic recommendation for every job. Most ATS have built-in tools built right into them, eliminating the need for additional and costly subscriptions.
- Increase recruiter productivity- ATS has intelligent automation to eliminate tedious, administrative tasks and human errors.
- Decreased time to fill- An ATS attracts more qualified candidates and creates a modern candidate experience.
Assigning a value to all these would help you estimate the overall benefits. This can then be expressed as a percentage of investment to arrive at the ROI.
Frequently Asked Questions(FAQ)
Return on investment (ROI) tools demonstrate the value of your products to customers. They rely on the calculating ROI formula: ROI = (profit gained from investment/cost of investment)*100.
Implementing an ATS has significantly reduced the workload for the recruiters. Some suggest that recruiters spend up to 20% less time on hiring when using an ATS solution.
The rate of return is the conversion between the present value of something from its original value converted into a percentage. The formula is simple: It’s the current or present value minus the original value divided by the initial value, times 100.
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