Looks like you’re done finalizing a stellar Applicant Tracking System to enhance your hiring process. But what now?
You may have evaluated the ATS for your search firm in and out, but the last step is to determine the return on investment or the savings you actually make by spending on this piece of #RecTech.
In this guide, our experts have deconstructed all that you need to know about figuring out the ROI of a good ATS.
What is Return on Investment (ROI)?
ROI is a performance metric used to evaluate the efficiency of an investment in a software, service, or tool. It is a popular performance measure because of its versatility and simplicity.
It directly measures the return or savings from the investment. The rate of returns helps you compare and rank the service with its competitors.
Let us now put this in the context of an ATS.
ROI of an Applicant Tracking System
An Applicant Tracking System is surely intuitive and helps make the recruitment process simple for you.
When you find the recruiting software of your dreams, you are 100% sure that the software’s benefits will boost your recruiting efforts.
Use Our ATS ROI Calculator
If you wish to calculate the total savings of time and money you make using an ATS, don’t miss out on using our ROI calculator. Fill out your details, and get started!
4 Ways in Which an ATS Maximizes Your ROI–
- It helps decrease the time taken to fill positions.
- It helps reduce your hiring and recruitment marketing costs.
- It helps attract qualified job seekers and improve the quality of your hires.
- It enhances your work productivity.
A Detailed Guide to Calculating the ROI of an Applicant Tracking System
Step 1: Define Your Recruitment Budget
The first step towards assessing the ROI of an ATS is to determine your budget.
Without a defined budget, you cannot move forward because you obviously don’t want to mess up the finances.
Here are some factors that influence your recruiting budget:
- The number of open positions to be closed
- The automation software and recruitment tools in which you will be investing
- The quality of your hires
- The cost-per-hire
- The assets spent on nurturing candidates for providing a positive candidate experience and onboarding the new employee
- Your recruitment marketing investments, such as creating job advertisements, employer branding, networking, etc.
Based on your allocated budget, you can move forward in calculating other components of ROI.
Step 2: Evaluate the Time Taken to Hire
Gone are the days when you had to exhaust yourself by using traditional recruiting methods like manually adding candidates to the database, maintaining spreadsheets, screening multiple candidates, and so on.
Thankfully, an ATS helps in reducing the overall time taken to hire.
The simplest way to evaluate the time taken in the process is to track the average time taken to complete each task, like emailing, sourcing talent, shortlisting applicants, scheduling interviews, and more.
Step 3: Estimate the Cost of a Bad Hire
A bad hire indicates a massive dent in your ROI.
In simpler words, a recruiter can’t afford to make a poor-quality hire.
Here’s how it will cost you and why your evaluations need to be accurate:
- You will have to spend more time making the hiring decision
- You will have to invest more monetary assets in upskilling the candidate
- There’s a high chance that the candidate won’t sustain in the work environment, so you will have to again go through the pain of finding a replacement
Here’s how you can compute these pointers:
- Find out the approximate number of hires to be made in the next 12 months.
- Quantify the average % of new hires who leave the company within 12 months.
- Calculate the average salary of employees.
Once you have these numbers, you will be able to compute the average annual cost of bad hires.
Step 4: Determine the Value of a Good Hire
Hiring a qualified candidate indicates massive ROI.
When you find high-quality leads, you may have to spend some hours doing the search initially, but your overall recruitment cost savings will increase.
Even though the time to hire is more here, you won’t be disappointed.
Here are some reasons how it will positively affect you:
- There will rarely be any requirement of finding a replacement because a high-quality hire can sustain in the organization for more than 12 months The retention rate of such hires is high
- There will be less expenditure on training and upskilling the talent
- There will be a decrease in your hiring cost
To calculate the value of a good hire, you need to evaluate the revenue per employee and the profit margin on a yearly basis.
Step 5: Compute External Costs
Let’s start with understanding what is meant by external costs.
Basically, external recruitment costs cover all your marketing investments and subscriptions to various tools and software.
You may need to pay to post your job advertisements on different job boards.
To accelerate your process, you will also require your tech stack to recruit successfully.
Add up the cost of all the tools you use, and you will have the total of your external costs.
Most recruiters make a mistake using a lot of digital tools for different tasks like sourcing, sending emails, scheduling interviews, building and nurturing a talent pool, and more.
You will also have to spend time on social media to improve your online presence to attract top talent.
An ATS will significantly reduce this cost because it will allow you to manage all your recruitment tasks in one place.
This will help you maximize your savings and ROI.
Step 6: Put it All Together and Assess
Now comes the part where you have to do the final math. (Don’t worry, it’s no rocket science!)
Document all the numbers you have and the amount of savings you made using the software.
Here’s the formula to calculate your profits:
(Profit gained / Cost of investment)*100
To calculate the ROI of a software, use this formula:
(Current Value of Investment−Cost of Investment) / Cost of Investment
Frequently Asked Questions
1. Why is it important to measure ROI?
Measuring the ROI helps you with your analytics and make the final call with continuing a software or tool. It also helps you set a benchmark for developing your recruitment or marketing tactics. You will have a clear-cut idea of whether the software brings value to your strategies or not.
2. What are the benefits of ROI?
Here are the advantages of ROI:
- It enables you to measure work efficiency.
- It helps you give a comparison analysis.
- It helps you determine the profitability.