It's not always intuitive to calculate the hard Dollar ROI from HR and TA initiatives. That’s why we created this course. We want to help you develop the mindset, skills, and frameworks to better articulate the value gained from these projects.
In this five-part crash course, we cover the basics of defining the ROI for your new HR Tech initiatives. We’ll also show you how to calculate measurable ROI, and how to use this in pitching new HR Tech initiatives to your number-crunching CFO.
What is ROI and What it's Not
To get started, we’ll walk you through the basics of ROI, why it's important for you to consider when you develop a pitch to incorporate HR-related technology in your company, and how to make the most of your pitch.
Watch our first video to get started, then read through the key takeaways below.
Distinguishing ROI from project outcome
As we get started, first let’s talk about what HR Tech ROI is - and what it isn’t.
When we take on a project, we often focus on the project’s completed outcome as a justification of ROI. However, this isn’t always the case. What’s worse, misrepresenting your project outcome as ROI can negatively impact your standing with high-level executives if it’s clear that you did not, in fact, achieve the ROI goals you set out to achieve.
An Example: New Career Site
Let’s say you are getting ready to pitch a proposal for a new career website to help draw more job candidates. Your job is to convince the executives that this is not only money well spent, but that it will save the company in terms of employee acquisition costs.
What’s Not ROI?
How beautiful a new career site looks, how mobile-friendly it is, or how informative employee testimonials are do not influence your ROI. Although these are great considerations, they do not influence the primary driver of your project - reducing acquisition costs.
What is ROI?
Your ROI, or return on investment, is the monetary gain from a new implementation.
In this case, the implementation is the new career site. Since the objective of the site is to reduce acquisition costs, the ROI will be the money it saves your company on candidate acquisition once it’s up and running.
Now, let’s take a look at what the hard Dollar ROI actually is.
Buyer beware, there is some math below (again, you may want to watch the video to really understand this).
With your current site, let’s say you have 1,000 people visiting per month, which leads to an average of 50 job applications. With your new site, you still expect to have 1,000 visitors per month. However, you expect more applications because the new design has a better layout, more information on company culture, etc.
Let’s say you are projecting 100 applicants per month instead of 50. This means your conversion rate of visitors to applicants increased from 5% to 10%. You are also projecting that those extra 50 applicants turn into an extra 5 new hires per month.
We will also assume your company has an average acquisition cost of $5,000 per employee spent on recruiting agency firms, job ads, etc. The 5 new hires you gain from the new career site don’t incur these costs.
That’s $25,000 your company does not have to spend because those new hires will come through the improved channels without any additional effort. That is the hard dollar ROI.
Again, the true ROI comes from the increased number of applicants you are receiving from your new site, and how this affects your overall acquisition costs - not from how great it looks.
Even though the aesthetics play into the applicants’ desire to apply, your measurable result is that the cost per applicant goes down. That’s the ROI. And that’s what’s going to get you the funding you need for your projects.
- Think through one of your upcoming initiatives and distill the value into how it will impact your business in dollars and cents.
- Write down a few sentences to guide your thinking. For example, "We want to buy a new sourcing tool. This will allow our recruiters to be more efficient and should mean that each one can hire XX engineers per month. This means we'll spend $YY less on third-party recruiters."
- Share your analysis with a colleague or peer at another company and get feedback. Let them know you are doing this to get better and don’t mind being critiqued.
Calculation: ROI from Cost per Hire
In this chapter we’re going to calculate the ROI for HR Tech that will help decrease the cost per hire. Please watch the video below, and read through the summary below.
Throughout the course, I encourage you to visit the HR Tech ROI page on our website. On this page you’ll find easy-to-download excel calculators for many different types of HR Tech ROI calculations, along with specific videos to explain each one in detail.
Here's the summary of today's lesson (again, watch the video!)
Calculating Cost per Hire
There are a lot of factors that go into calculating the average cost per new hire. Things like online tools, internal employees for recruiting, job board subscriptions/postings, media spend, and so on.
All these factors must be added up, and then divided by the number of people needed to determine the average cost per hire.
Most companies in the US have an average cost per hire of $5,000. Now, depending on your industry, this number could be much lower or much higher, but for the sake of this course, we will assume that $5,000 per hire is applicable.
Decreasing Cost per Hire
In the first chapter, we talked about our hypothetical career site project. Let’s take that to the next level now.
Let’s say we’re making our pitch to secure the funds for building that awesome new site. Since our goal is to decrease our cost per hire, we want to show how a new careers site will achieve this.
In our “before/after” comparison, you’ll see we had an average of 1,000 visitors that translated into 50 applicants, which converted to 5 hires. Our model for our new and improved site shows an expected 110 applicants, which in turn leads to 11 hires, still based on 1,000 visits to the site. The percentage of people who move from visitor to applicant increases as our new site does a better job of selling them the idea of working at our company.
Here’s the ROI
If we are making 6 more hires per month at $5,000 cost per hire, that’s $30,000 per month. That’s $360,000 per year that the company doesn’t have to spend to acquire new hires because those extra hires are drawn to the superior website with all other costs being fixed.
In other words, if our company does not make the change to the new site, our CFO will have to spend the extra $360,000 per year to go out and find the applicants that will simply come to us with this better site. That’s your pitch.
Supporting Your Case
The key to presenting this ROI is having accurate numbers to support your projections. For example, you might be able to show a saving of $360,000/year, but if that new site is going to cost $50,000 to design and implement, you need to account for that spend in your first year’s ROI.
Still, who wouldn’t want to save $310,000 for the first year, and $360,000 each year after that?
- Take the calculations we laid out in today's lesson and put them into an excel model. Here are a few excel models you can use if you get stuck.
- Change some of the assumptions to reflect your company - maybe you get a lot more visitors to your career site, or your conversion rate is very different, or your app:hire ratio is off by a lot.
- Revisit your calculation, but this time do it with a friend at another company and compare each other’s models.
Here are some HR Tech solutions we recommend looking into for great ROI related to your cost per hire:
Calculation: ROI from Time To Fill
Way to go on reaching Chapter 3! We’re glad you’re sticking to your goal of learning to think of HR Tech in terms of ROI.
In this chapter, we are going to continue to think like the CFO as we learn how to pitch for a new career site by outlining the ROI benefits to the company. Watch the video and read the text summary below.
Let's get started!
In Chapter 2 we learned how to look at the right numbers to calculate ROI in terms of cost per hire. Now, we need to think about how we can decrease the time it takes to fill a vacant position using HR technology.
A good benchmark is 45 days to fill an opening, from the time the job is posted to the time a new employee is hired. Let’s assume our goal is to decrease this to 30 days.
Calculating a Position’s Average Daily Value
Let’s look at the value per day that a salesperson brings to the organization.
For our example, a sales position brings in $1 million in sales per year. That employee works 250 days per year, so that’s $4,000 per day.
Here’s the ROI
If our goal is to decrease our time to fill by 15 days, that’s $60,000 (we are assuming all 15 days are workdays, not including weekends).
If we were to account for training, the company’s marketing expenditures for that salesperson to be able to sell, and so on, we can bring that $1 million down to $500,000. That breaks down to $2,000/day, or $30,000 for those 15 days we’re trying to shave off the time to fill.
Salary and Value to Company
In looking back at the estimated $1 million per year in sales, that individual is likely to earn a salary of around $250,000 per year. At our revised value of $500,000, that gives them a value of 2x.
Ultimately, our ROI in our time to fill comes from looking at the total value per day that those new employees bring to the table. So, though decreasing the time to fill by 15 days might be ambitious, you will see some big numbers in savings. This is true even if you are only trying to shave a few days off the time to fill.
If your company is planning to add $3 million in payroll for the upcoming year, for example, with a 2x value per employee, that’s a $6 million increase in profits. Getting those positions filled even a few days faster will equate to a big overall value to the company.
So, very quickly we can start to see massive value from initiatives that decrease our time to fill. If any of that was confusing or not detailed enough for you - we recommend re-watching the video!
- Try to calculate the value per day for one of the roles in your company. Maybe it's one of your recruiters, a salesperson, or an account manager.
- Think deeply about the work they do and how that translates into value for the company.
These HR Tech solutions are designed to reduce your Time to Fill. Consider what ROI you can gain from using them.
- Video Interviewing Software that reduces the time you use for scheduling and sitting in on in-person interviews.
- HR Chatbots that can handle your frequently asked questions from candidates.
You’re over halfway through the course. Give yourself a pat on the back.
Next up: Pitching a project to your senior team using ROI.
We're in the home stretch now! Let’s dive into chapter four of the course.
You've learned how to identify and calculate key components of your ROI so you can make your case for integrating HR technology into your company's hiring process.
Now it's time to start building your presentation!
Watch the video, and read the summary below. Let's get started!
Before and After
There are two major components to pitching ROI. Think of this as a “before” and “after”.
The “before” shows present-day pain points. There’s a lack of value, there’s no draw to the right people, the job site is boring, the list can go on and on. List these clearly so the decision-makers understand the problems you are solving in your proposal.
The “after”, then, shows all the ways life will improve with the implementation of the technology you are pitching. This is where you focus on the data to support all the improvements you expect to see with the technology.
Enlist the support of someone in your organization who has an analytical background and can help you with the details of your pitch. This is probably someone with an MBA, who used to work in consulting. Someone on the finance or strategy team can also be a good person to rope in there.
Telling a Story with Data and Facts
When you get down to the numbers, keep reiterating the “before” (i.e. what you are currently spending per year on talent acquisition) as well as the “after” (the decreases in outlay, increases in efficiency, and so on).
PowerPoint slides are great to lay out this info, but you will also want to have an Excel spreadsheet handy so you can do some real-time changes based on feedback from your executives. Think of their questions as a sanity check rather than an attack on your assumptions.
Being able to quickly alter details of your ROI calculation based on more conservative or aggressive estimates will show how much thought you have put into your proposal. The tools on our ROI Calculators page are a great starting point for this.
- Make a brief outline for a pitch related to an HR Tool that you think would be valuable to your company.
- Think about the before and after, and how you may be able to tie dollars and cents back to each.
- Who would you enlist to help you make this into a robust pitch? Have a coffee with them to get their feedback on your outline.
We’ve got one more chapter left! Last, but definitely not least, we’re looking at the value of reflection.
Reflecting on ROI
Here we are on the final topic of our course! I hope this has been valuable for you so far :)
The number one way I’ve grown as a business leader is to reflect on my past decisions. An ROI model is the perfect time capsule of how you were thinking when you made an important decision.
Today we will conclude with how to complete a final analysis several months after the fact. Watch the video here, and read the summary below. Let's get started.
Why an Analysis of the Analysis?
Any time you do an ROI analysis, it’s important to see what worked and what didn’t. You will not get 100% accuracy. There are too many unknown factors that will impact your results as you move through the phases of your implementation. And that’s ok.
Assessing Successes and Failures
What’s important is to do the assessment after the fact to see what maybe did not work quite as well as expected, and what went even better than you thought. This insight will help you the next time you have an HR technology proposal to pitch.
Examining successes and failures will help you build credibility. You will be able to objectively find the areas that did not go as well as expected the last time, and account for that in the future.
Learning from the Past
No one gets it right all the time. This is part of why it’s good to build in some conservative estimations at the beginning, but it’s also good to better identify factors that are likely to come back around again.
For example, maybe last time you assumed that every recruiter in the company was going to adopt the new recruiting tool. Then you realized that, in reality, it was more like a 50% adoption rate. That probably had a significant negative impact on your last pitch, but by correcting for that next time, your accuracy will improve substantially.
These excel models are like journal entries. We learn A LOT by reflecting on them several months later to see how our thinking has evolved.
Putting Lessons into Practice
This concludes the 5-part course on Defining the ROI for HR Tech initiatives.
Congratulations on finishing it! I hope you found this to be helpful as you think about your next pitch to implement new HR technology in your company
For reference, here are some excel sheets to get started on your next project.
- Treat yourself to a beverage of your choice, and give yourself a pat on the back. You deserve it!
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