This is a guest post from our good friend Phil Strazzulla, the founder of SelectSoftware Reviews.
Today, factors like the Covid-19 pandemic, the Great Resignation, and economic downturns pose unique talent acquisition challenges. With the need to find skilled candidates at an all-time high, investing in recruitment is quickly becoming a top priority for businesses across the globe.
And that’s where Applicant Tracking Systems (ATS) come in. Using the right ATS can change your recruitment game like no other. But how can you calculate the ROI on implementing an ATS and build a rock-solid business case? Here are three simple calculations to help you out!
The cost of a bad hire.
A ‘bad hire’ is typically an employee who negatively impacts the company’s performance, morale, and culture. It can also mean someone who leaves the organization within 12 months of being hired.
In the USA, the average cost of a bad hire is around 30% of the employee’s first-year salary. A good ATS can help you avoid this by:
- Finding more qualified candidates through specialized sourcing tools,
- Make better hiring decisions through standard evaluations, cognitive assessments, and video interviews,
- Involving not just your HR/TA teams but also the hiring managers and existing employees.
Now, let’s get specific with numbers.
- Let’s assume your organization plans on hiring 25 people this year, with the average salary at $50,000/£37000 (approx). Also, consider that 12% of your new hires churn within the first year. With the average cost of a bad hire at 30%, as mentioned earlier, the total annual cost of bad hires would be:
(Avg. employee salary)(cost of a bad hire)((estimated number of hires this year)*(churn rate))
= 5000030%(25*12%)
= $45,000/£33,200
Now, conservatively, if using an ATS can help you decrease bad hires by 20%, then the total savings you can generate will be:
(Total cost of bad hires)*(decrease in bad hires)
= 45000/33,200*20%
= $9000/£6940
That is definitely a worthy ROI!
Time cost savings.
Using an ATS instead of complicated excel spreadsheets and email chains can save you a lot of time, energy, and most importantly, money.
A good ATS has intelligent automations in place to streamline candidate communication, interview scheduling, and other administrative tasks while reducing human error. It also ensures that all important information is easily accessible and stored in one place.
Now let’s calculate what this means in dollars.
- Assuming you have a team of 5 HR professionals involved in the end-to-end recruitment process. Without an ATS, a member of your HR team might spend 25 hours per week on various hiring activities such as communicating with the candidate, setting up interviews, evaluating tests, etc. Assuming that their hourly rate is $20/£14.75, the time cost per week is:
(number of hours/week)*(hourly cost)
= 25/14.75*20
= $500/£370
Using a smart ATS can reduce their HR workload at least by 30%, depending on which one you choose.
This means that the hours per week will now be reduced to 17.5. With the hourly rate remaining unchanged, the new time cost per week is:
=17.5*20
= $350/£260
That’s a weekly savings of $150/£110 for just one member of your recruitment team who is using an ATS. Multiply that by the entire team and the number of weeks in a year, and the total ROI is:
= 150/110552
= $39,000/£28,800
That’s the kind of ROI the right ATS can give!
Time to fill.
Simply put, time to fill is the time taken for the recruitment team to hire for an open position. Whilst different organizations measure this period using different data points, the premise remains the same.
Using an ATS reduces the time to fill by:
- Providing access to more candidates through referral programs and past applicants within the database,
- Creating a better candidate experience through faster interview cycles,
- Streamlining workflows, in turn boosting recruiter productivity.
Here’s how it translates to numbers.
Let’s assume that the revenue a salesperson brings every year is $800,000/£590000. If they work 230 days a year, that’s roughly $3500/£2580 a day. That means every day you don’t have that one salesperson, you lose $3.5k/£2.5k as a company.
If your average time to hire a salesperson is 40 days, then the total cost of time to fill is:
(revenue per day)*(number of days to hire)
= 3500*40
= $140,000/£103,300
If you use an ATS, you can realistically bring the number of days to hire down to 35, meaning you can save five days worth of revenue, i.e. $17,500/£12,900. Assuming you’re looking to hire 5 more salespersons in the next 12 months, you can generate at least $87,500/£64,500 in savings.
Now that we’ve made all the individual calculations, it’s time to put it all together to determine the added value and ROI that an ATS provides annually.
Total savings = cost of bad hire savings + time cost savings + time to fill savings
= $135,500/just short of £100,000
In conclusion, using an ATS can help your business save at least $135,500 or nearly £100,000 every year.
If you’re looking to buy an applicant tracking system, you can check out SelectSoftware Review’s website which contains some incredibly useful guidance on ATS implementation.
If you need to find the Best Applicant Tracking System for your business, be sure the check out our guide to finding Top Applicant Tracking Systems in 2024.
Phil Strazzulla is the founder of SelectSoftware Reviews, a website dedicated to helping HR teams to find and buy the right software for their organizations.
SSR offers in-depth, free content and a vibrant community of HR experts to companies all around the world who need help selecting everything from their next ATS to People Analytics.
Phil started his career in venture capital at Bessemer Venture Partners before getting his MBA at Harvard Business School. He’s a self taught programmer, struggling golfer, and overall business nerd.
You can reach Phil on LinkedIn here, on Twitter here, and his company SelectSoftware Reviews here and here.
All US dollar/GBP comparisons are reflective of exchange rate as of date of posting.