Is that Recruiting Resource Working for You?

The number of resume database and job posting services available to talent acquisition teams is staggering.  Whether you are looking for someone to work in a beauty salon, data center, or oil rig there is a resource for you to post jobs and search for talent.  The challenge for talent acquisition managers is how to invest your limited resources and how to report on the effectiveness of that investment.  Fortunately, the tools are available, if not a little challenging to apply to our field.

Do I spend $400 on a job posting?  Do I spend $7,000 on a database license for a year?  Those are questions talent acquisition managers have to ask all the time, both while budgeting and throughout the year as specific searches pop up.  Compound that with sales pitches from vendors who say,”One hire will pay for the license.”  It makes it easy for us to try and load up on resources thinking they will pay for themselves over the course of a year.  However, is it true and can you show your leadership that is the case?  What about the probability that the investment will pay off? 

The traditional response is to show the Return on Investment or ROI.  I’ve seen many in the talent acquisition world do a comparison of investments and say the $7,000 investment would be less than a 20% agency fee.  Let’s say you hired someone from the resource at a salary of $50,000.  That $7,000 is indeed less than $10,000 from an agency.  The problem is that represents a choice of resources, not the ROI on your $7,000.  The ROI is intended to show the efficiency or benefit of your investment.  You could certainly compare your $7,000 database and $10,000 agency investments based on ROI, but it’s not a true measure of ROI to simply compare the costs.   Before you start, it helps to know what seems like a deceptively simple thing: How much profit does a hire generate?  In some companies it is easy to find out and in others, not so much.  Either way, you should be able to work with your finance department to help.  Armed with your data, you can plug it into the ROI formula,

ROI= (Annual Profit Generated by Employee - Cost of Investment)/Cost of Investment

Let’s say that new hire making $50,000 generates $10,000 in profit, we get the following ROI:

Return on Investment

Resume Database= .43

Agency Fee= .30

Admittedly, there are some limitations in calculating ROI.  It also requires data that will be difficult for some talent acquisition managers to find.  There is also the limitation of considering profit in the calculation.  What if your hire making a $50,000 salary generates $1,000,000 in annual revenue, but an inefficient cost structure at the company reduces that revenue to $10,000 in after taxes profit?  You could substitute revenue for profit in the calculation to show hires driving revenue.  I have always viewed the talent acquisition function as one that drives revenue and profit.  Using ROI opens the door for conversations with leadership and performance analysis that we will continue to explore in upcoming articles.You indeed get better ROI from the resume database than you do an agency fee.  You are essentially getting 43% and 30% back on your investments, respectively (losing money on the transactions).  Ideally, you would want to be at or above one, representing you have made your money back or made a profit.  You can also do the same calculation aggregating your hires quarterly or annually to compare how your resources are working for you and if they are good investments.  If their ROI is not better than one, you should keep an eye on them or look elsewhere.  Either way you now have the tool to answer that sales pitch that one hire will pay for the product (it does not in our example).