When looking for the applicant tracking system (ATS) of your dreams, it’s easy to imagine it will make all your hiring headaches disappear. You know it will save you a ton of time and money — but can you prove it?
Numbers have a way of speaking louder than words. Here are some simple formulas to help you calculate the ROI on your ATS and win over your executive team:
1. Cost of an Agency vs. In-House Recruiting
With recruiting fees easily hitting $20,000 per placement, it’s easy to make the case for using an efficient ATS to bring hiring home and save in agency fees.
To understand the numbers, you’ll need the monthly and yearly amounts your company currently spends on recruitment fees. Then, compare those numbers to the cost of your ATS. By just paying a monthly fee on an ATS instead of outsourcing your hires, you could save your company tens of thousands of dollars a year. Internally, you’ll still need people to manage and track applicants, but with your new ATS, you can hire more efficiently without having to create a whole new position to handle the process.
2. Cost of Time Saved Through Automation
Still using messy Excel sheets and email chains? With the formula below, you can see how much time and money you are spending on in-house hiring systems each week.
Start by identifying how many members are on your hiring team, and then determine how many hours per week each person spends on hiring tasks. Next, take that number and multiply it by the hourly rate each person earns:
Number of hours per week x hourly rate = amount per week (pre-ATS)
A smart ATS could easily automate away at least a third of each employee’s workload, reducing the amount of time each employee spends on hiring tasks each week. This can translate to quite a bit of money saved, the amount of which you can determine with a little basic math:
New number of hours per week x hourly rate + cost for ATS = cost per week (post-ATS)
3. Calculating the Value of a Quality Hire
When your entire hiring team is working together in the most efficient way, more time can be spent on finding quality candidates. The best hires can save you money in onboarding and retention costs, and they ultimately have great ROI.
The real question is, how can you support those assertions with hard numbers?
First, if your company has one, check its Securities and Exchange Commission report for the revenue per employee. Multiply that number by 40 percent to get an estimate of the profit margin per hire.
To get the ROI, subtract the cost of the ATS from the additional value of the top-tier employee you hired with it:
- Value of quality employee (QE) per year
- Annual cost of ATS (ATS)
QE – ATS = variable profit per year, per hire
If you make 20 hires per year, the remaining 19 can be calculated at full QE because the cost of the ATS is set.
For more expert recruiting insights, check out the latest issue of Recruiter.com Magazine:
4. Cost of a Bad Hire
So much goes into recruiting and hiring the best talent. Your ATS is one key piece of the puzzle when it comes to creating and executing the types of job descriptions, employer branding, and active and passive sourcing techniques that consistently bring in top talent.
The US Department of Labor (DOL) has one of the most conservative estimates when determining the cost of a bad hire. According to the DOL, the price of a bad hire can reach roughly one-third of the employee’s first-year earnings. However, that number can differ based on the rank of the position and the cost of the tools implemented to fill it.
If you use the previous value-based ROI formula to calculate the profit losses of a bad hire, it’s pretty easy to see how one bad hire affects a company.
5. Cost of Recruitment Marketing and Job Advertising
It is a job seeker’s market, and competition is getting steeper by the minute. With social media in the mix, the pressure to be constantly in front of candidates is immense. Using an ATS to build targeted pools of qualified talent can save you thousands in recruitment marketing and job advertising costs.
A larger pool of the best candidates means you can fill open roles faster and with fewer ads posted. On top of that, an ATS allows open positions to be shared quickly and easily on social media, which drives higher-quality references and ultimately saves you money on job ads. The formula below allows you to calculate how much you are spending on advertising for open positions:
- Price per job ad (A)
- Number of open positions (OP)
A x OP = cost of advertising
If you use an ATS with an awesome reporting feature, you can also see exactly which sources give you the best quality leads, so you can focus your spending more precisely.
6. Cost of Employee Turnover
The best recruiters are all about retention. A standardized system for screening quality candidates can help you lower the cost of employee turnover by hiring more employees who are a better fit.
To determine how much better of a fit, you’ll need two main metrics:
- Number of regrettable departures (ND) = number of employees x annual turnover percentage
- Average cost of those departures (C) = cost of hiring + cost of onboarding and training + cost of learning and development + cost of time the role went unfilled
ND x C = annual cost of turnover
Using an ATS to bring employee turnover down by just 20 percent would save you immensely. Plus, this would also reduce the hit you take on overall employee engagement and productivity every time a team member leaves.
A good ATS adds value to the business, but a great ATS adds value with proven ROI. Using these formulas should help you convince those iffy executives that a great ATS is worth the investment.
Darren Bounds is the CEO and founder of Breezy HR.