How to think about recruitment spend and ROI during a downturn
March 16, 2023
Inflation is up nationwide, and so are interest rates—and many business leaders are proactively preparing to weather a recession. Companies across a broad range of industries have put freezes on hiring, reevaluated spending, and (in some cases) laid off workers.
If you’re doing the same, your talent team may seem like an obvious target for budget cuts. However, recruiting doesn’t cease to be an essential business function just because you temporarily don’t have open positions. If the lead on a major project hands in their resignation tomorrow, you need to be ready to fill that position. Besides, every downturn ends sooner or later. This is the context wise leaders consider when forecasting and budgeting recruitment spend.
Companies looking to save money during a downturn often eye their talent acquisition departments as places to save. But you don’t want to make cuts that will hurt your business’ productivity both now and in the future. Here’s how to understand the ROI of your recruitment spend so you can make money-saving decisions that guide your team toward more efficiency, rather than pushing for the lowest-possible budget.
Understand the types of recruitment spend
Your company’s recruitment spend includes all the costs associated with hiring and can typically be separated into two categories: hard costs and soft costs. Hard costs are the expenses accounted for in your company’s recruiting budget. They include:
Job board access
Careers page development and maintenance
Recruitment agency fees
Recruiting software (ATS, CRM, scheduling software, etc.)
Signing and referral bonuses
Employee onboarding and training costs
… and so on. (Perhaps you’re evaluating these line items right now to see where you can feasibly cut your recruitment spend.)
Soft costs, on the other hand, are harder-to-assign numerical values—if they’re assignable at all. The soft costs of hiring include:
Department leaders’ and hiring managers’ time
Lost productivity due to an empty role
Stress on other employees who are temporarily covering positions that need to be filled
These aren’t expenses that will show up on a budget, but they translate to real losses for your team. The soft costs of hiring only come into play while a role is actively being filled. Therefore, they can be mitigated with an efficient hiring process. (In other words, the more efficient your hiring process, the fewer your soft costs.)
Don’t expect to measure recruitment ROI as a simple percentage
Recruitment ROI is typically defined as the value each new hire brings to your company, but you’re unlikely to end up with an easy percentage that expresses your hiring team’s success. Like recruitment spend, it’s best understood in “hard” and “soft” varieties.
If you want to find the hard returns of your recruiting functions, you’ll need to look at the improvement in metrics like:
Cost per application and cost per hire
Time to hire
Work with your hiring team to track the metrics that are especially useful during a slowdown to determine the efficiency of your recruiting operations.
The soft returns aren’t easy to quantify, but they can be observed in:
Each good hire your company gets, and
The systems your talent acquisition team sets up to help them consistently deliver top talent.
There are metrics that suggest ways to look at these benefits as hard returns, but they’re fiddly. (For instance, quality of hire: some companies calculate it based on performance reviews; some use employee engagement; some use retention or turnover rates. In truth, all of these considerations are valid indicators… but there’s not a reasonable way to multiply them by one another to end up with an overall Hire Quality score.)
We find it more reasonable to acknowledge that there are parts of the hiring process that can’t easily be tracked in a spreadsheet. As a finance leader, it’s difficult to evaluate (or make) a financial case for a function when many of its key indicators of success are qualitative rather than quantitative. But losing sight of your soft costs and soft returns can harm your hiring department’s ability to deliver the talent your company needs to succeed. In other words, don’t dismantle your systems during a downturn! They’re what get you those soft (as well as hard) returns.
Invest in the recruiting functions that return value during a downturn
Your hiring team should use the current downturn to focus on initiatives that cut recruitment costs and/or increase returns (both hard and soft). Recruitment spend for the following functions will benefit your company both now and in the future:
Centralize your systems to cut down on spend
Most recruiting teams use multiple tools to support their operations. Unless your TA leaders built their tech stack thoughtfully around their CRM, it likely has some redundancies. A hiring CRM like Gem allows you to do the work of multiple recruitment tools in one platform. Gem:
Automates outreach, eliminating the need for separate email-finding tools, candidate sourcing tools, or messaging tools
Helps you plan workloads and track productivity, replacing traditional product management tools
Offers full-funnel visibility, performance metrics, and hiring forecasts, so you’re not paying for additional kanban boards or analytics solutions
Centralizes all candidate information into one place
Every piece of unnecessary software you can eliminate will save you money—and having everything in one place will ultimately save your hiring team time.
Use data to optimize your hiring funnel
A better hiring funnel delivers rewards both hard (faster time to hire, lower average cost per hire) and soft (a process that uses hiring managers’ time efficiently by only advancing the most qualified candidates). Gem and other data-driven hiring tools collect the information your team needs to improve its process.
Calculating basic KPIs is simple in Gem; the tool’s real value is in the granularity it offers. For example, you can learn:
Which sourcing tools are the most effective (sort your offer accepts by source)
Which departments are hiring the fastest (filter time to hire by role)
Which employees move talent through the pipeline most efficiently (sort time in stage by recruiter)
Your team can also use KPIs as indicators of soft costs/benefits. For example, have them look at passthrough rates by stage to determine whether each step in your process is effective and well-balanced. They may find parts of your funnel that can be overhauled to save hiring managers’ time—or removed altogether without harming the quality of their results.
“At one point, passthrough rates in Gem showed us that a high percentage of candidates were dropping out at the clinical assessment stage in the process. So we decided that instead of making all candidates go through a simulation interview, we’d give them the option of completing a home assessment test. Gem helped us uncover a pattern and work toward clearing that hiccup in the funnel, which will mean increasing the number of qualified candidates who pass through to the next stage.”
- Sandra Osorio, Recruitment Specialist @ DotCom Therapy (formerly @ Mindstrong Health)
Use the winners in each category as models for lower-performing segments. Gem also shows peer benchmarks for common KPIs like time to hire, offer acceptance rate, and more, so you can compare your team’s performance to competitors in the same industry.
Building and nurturing a diverse talent pipeline
The quality of your hires depends on the quality of your applicants, and top talent doesn’t hang out on LinkedIn all day. Your team should be using the downturn to build a talent pipeline and manage your company’s talent pool.
Talent nurture is a long game. It involves:
Segmenting your talent pool (by role, source, reason for interest, or another salient point)
Creating marketing personas for each segment
Writing email journeys for each persona
Automating personalized versions of those messages to send to each candidate on your nurture list
Gem has built-in tools to handle all of this; teams without a tool made for talent nurture typically end up with a patchwork of systems. This can cost more and lead to top talent falling through the cracks. Give your team the resources to have a smooth talent nurture process, and your company will have access to excellent candidates with the skills and values needed to thrive in your work environment.
Learn how to get the most out of Gem during a hiring freeze
Our "Recruiting in a downturn" survival kit lays out the steps your team can take to optimize your hiring process
Don’t sacrifice long-term returns for short-term cuts
Whether the economy’s up or down, data-driven hiring platforms like Gem empower talent acquisition teams to work efficiently and cost-effectively. They consistently deliver ROI by empowering each team member to do their best work. And they’re worth investing in even when the volume of that work is low.
Neither systems nor data can be cobbled together in a few months. You have to invest in them over the long term—even during downturns and hiring freezes. Make sure your new hiring budget (even the tightest version!) keeps your hiring platform and infrastructure intact.
Giving up on the system your team has built would mean consigning them to an inefficient recruitment process—without the data they need to improve it—when hiring picks up again. Keep your recruitment ROI strong by reinforcing the smart investments you’ve already made.
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