March 16, 2023
How to think about recruitment spend and ROI during a downturn
HR Insights Writer
February 7, 2023
You’ve seen the headlines. It seems like almost every day a major tech company is announcing a new round of layoffs. But while big tech is making big news, the broader macro environment isn’t only impacting tech—Dow Chemical, Hasbro, Saks, Wayfair, and many others in the manufacturing and retail spaces are cutting costs amid deteriorating economic conditions and sharp declines in profits. The current state of economic uncertainty is leading to a lot of trepidation in the business world… and talent acquisition (TA) teams are often the first to be impacted.
The logic seems to be: “Since we’re not hiring right now—or if we’re only really backfilling for attrition these days—what’s the point in having an entire TA function?”
Yet those who’ve been through economic slowdowns before will tell you that this argument doesn’t really hold up—indeed, it puts you at a disadvantage over the long run. “If there’s one thing the more-than-20 years in this industry has taught me, it’s that hiring always bounces back, writes Richard Cho, Senior Recruiting Executive and Advisor at Gem. “And when it does, it often does so with a vengeance, leaving many companies flat-footed and unprepared.”
There’s a good chance your leadership team doesn’t want to be among the unprepared when economic conditions improve and hiring bounces back. If you’re feeling increased pressure to make the case for preserving both your TA team and its tech in the meantime, here’s some of the data that will support you.
We get it: You may not be hiring at full capacity or full force and your recruiters may have fewer reqs than ever. But in this economic environment—in which the competition for talent is no less fierce—you’ll still want to take those few reqs seriously.
One of the most important things you can do is provide a high-level overview of how your team is performing and how your work connects—both directly and indirectly—to critical business outcomes, even if you’re only hiring for backfills. “Hiring goals ensure you have a healthy hiring function whose output propels the business toward its goals,” says Michelle Yoshihara, Manager of Talent Planning at Greenhouse.
Some of the most common metrics TA teams use to measure their performance include hires to goal, offer acceptance rate, and time to hire—these are all data points that will help you understand how efficient and effective your hiring processes are, which ultimately translates to filling critical roles that drive revenue or save your company money.
You can also look at historical data that shows how your TA team has performed in the past to optimize your process during the downtime. This way, when hiring resumes full-force (which it always does), you have a streamlined process in place that will allow you to scoop up top talent that’s on the market. As one TA professional put it in a recent Gem survey: “As hiring slows, we will be much more intentional about each hire we make. As such, we need high-fidelity data to inform our processes and decisions.”
You can drill down into your historical data with a tool like Gem’s Talent Compass, which helps recruiting teams identify pockets of inefficiencies and lost productivity in their hiring process to ensure employees are spending less time getting stuck in unproductive interviews, and more time carrying out their job functions—giving those hours back to them. Is one department seeing sub-par passthrough rates from onsite to offer, suggesting team members are spending too much time in interviews that are ultimately unproductive? Now the hiring team knows precisely the stage of the funnel it needs to optimize for efficiency.
When you know passthrough rate data, you can also share best practices across departments, omit redundant stages of the funnel, and more. All of this means you’re saving employee time—and, ultimately, money.
“One of the reports we ran in Gem was around how much of the team’s time we were using to review candidates. Let’s say it was 30 hours of time to hire a single person. We then set a goal of 20 hours per hire. It’s important to be able to quantify the ROI in terms that matter to a CFO. They care about the time their engineers spend on things other than building.”
- Jonathan Tamblyn, Chief People Officer @ Skolem (formerly @ Gemini)
Even if hiring is slow right now, you can continue to build pipelines to prepare for when it picks back up again. You can start by checking in with hiring managers or internal clients regularly to see what their most important roles will be when they have headcount again. Then you can focus on finding and nurturing talent for those roles during this time. Gem’s Talent Engagement Platform shows top-of-funnel activity, so hiring managers and leadership can see all the work that goes into outreach before managers even speak to a candidate.
When possible, source within your existing database. Instead of starting every search from scratch, engaging with silver medalists and warm candidates who are already in your database can accelerate your time to hire. Gem’s Data Refresh keeps prospect records up to date on an ongoing basis—automatically. With an evergreen database of prospects, you’ll be able to instantly create pipelines for new searches, search through your CRM to re-sequence previously-encountered prospects, and nurture talent pools over time with precision and confidence.
“It’s helpful for us to continue to source regardless of what the market is doing; even if we’re not actively reaching out to people, list-building is still a great use of our time.”
- Shannon Toomey, Senior Manager, Recruiting @ Descript
If your company has committed to prioritizing diversity, equity, and inclusion (DE&I), a potential economic downturn shouldn’t be an excuse to brush those goals aside. In fact, you can use this as an opportunity to recommit to these goals and pursue them with increased dedication. “Improving your diversity hiring efforts is a sensitive and time-consuming process that can be difficult to oversee when you are facing aggressive hiring goals,” writes Richard Cho. “That’s why a slowdown is the best time to focus on creating better, more objective hiring processes.”
To examine your hiring funnel with a DE&I lens, things to look out for include:
The percentage of candidates at each stage that came from diversity sourcing efforts. If you’re investing in dedicated diversity sourcing channels, do you know how each one is performing?
Your application and interview questions. Are there any questions that inadvertently remove qualified candidates from non-traditional backgrounds?
Your interview stages. Are there places where candidates from underrepresented groups are dropping out at disproportionate levels?
Passthrough rates by recruiter, hiring manager, and interviewer. Are there any hiring team members who consistently disqualify candidates from underrepresented backgrounds?
“Now is the time to identify these problems and address them through things like unconscious bias training, revamping job descriptions to be more inclusive, or inviting an external organization to meet with your team,” writes Cho.
Not only does your TA team likely have more bandwidth to conduct these audits and act accordingly when your organization has thoughtfully slowed hiring, but this is also a critical way to demonstrate your ongoing commitment to DE&I. Today’s job-seekers want to see companies that are genuinely making an effort to live by these values at all times.
If your company is tightening the pursestrings, you’ll likely be looking for ways to cut down on spending. “One of the best waysto impact your company’s bottom line… is a full audit and evaluation of the tools in your recruiting tech stack,” writes Richard Cho. This can include your:
Applicant tracking system (ATS)
Customer relationship management (CRM) tool
Video interviewing platforms
Employer branding tools and platforms
… and more. Take time to evaluate each tool. How critical is it to your team? How widely is it adopted? How well does it integrate with the other tools in your tech stack? What’s the urgency of spending on this tool specifically, compared to other solutions?
Gem’s sourcing solution has allowed teams to reduce spend on everything from email-finding tools to additional candidate sourcing tools like Fetcher. Gem’s Talent Compass—which offers full-funnel visibility, hiring forecasts, performance metrics, and executive reporting that TA teams use to plan ahead and guide their recruiting strategy—has helped our customers cut spend on everything from kanban boards like TalentWall to analytics solutions like Ashby (Gem’s Talent Pipeline and Talent Compass replace them both in a single, source-of-truth solution).
You’re likely relying on several different sources for candidates—everything from job boards and social media campaigns to agencies and in-person events. When your budget is working overtime and you need to account for every dollar, it’s more important than ever to assess which sources have the best ROI.
The latest updates to Gem’s Talent Compass allow you to evaluate the success of your sourcing investments so you can reduce costs and optimize spending based on which channels are driving the most impact. You can track cost per application and cost per hire across channels with the Source Channel ROI Calculator.
If you’re regularly working with agencies, it’s worth taking a closer look at what you’re spending and whether those third parties are continuing to deliver a clear ROI. Agency fees are typically 25-30% of first-year compensation, paid out in a lump sum. At 25%, you’ll pay an agency $45k to fill a role with a salary of $180k.
Because Gem allows the average recruiter to be more productive—our customers see 5x faster sourcing, 2x response rates, and 5x higher passthrough rates with our talent engagement platform—they can typically make a handful of hires more every year than they would without Gem. The ability to get more hires out of your internal team can be game-changing from an agency spend perspective: if those are roles that would otherwise have to be filled by agencies, that’s an immediate cost-savings of $100-$200k… or more.
“We eliminated agencies with the onboarding of our sourcing team using Gem, which saved us about $300k in the first half of last year.”
- Angela Miller, Head of Recruiting @ Instabase (formerly @ Pure Storage)
While many of the data points we’ve examined so far look back to see how your TA team has been performing, you might also want to spend some time looking forward to predict different future scenarios.
Capacity planning is an exercise that allows you to create models of how many people you’ll be able to hire based on your current TA team composition. And a hiring slowdown is the perfect time to go through this exercise, writes Richard Cho. “While you have the time and space in this downturn, make your recruiting capacity model so accurate that you know what your ceiling is for hiring. So when the business comes to you and says, We need you to hire 150, and you’re like, My model shows that I can only hire 100, you have the data and specificity to bolster you.”
Going through this exercise will help you show leadership that any changes (read: reductions) to your TA team won’t just affect what you can do now—it will also have a long-lasting impact on your ability to meet any future hiring goals.
This is another instance where Gem can come in handy: Gem tracks passthrough rates and forecasts how many hires you can make given historic throughput—data you can slice by everything from hiring manager, to recruiter, to department, to role.
Even if you don’t have Gem, Cho explains, “People in your organization have this data; you only need to sit down and put in the work to build a model that allows for more than directionally-correct capacity output. It requires getting all hands on deck—every recruiting leader creates their own model with their own percentages of deviation. All of that goes into a kind of algorithmic soup, and the org can ultimately present a number that gets more accurate over time.” (Read more about Cho’s tips for capacity planning here.)
In the previous section, we covered your overall ability to meet hiring demands. Now let’s look at one area in particular your business leaders are likely to care about: how quickly you can ramp up your GTM org. Whether it’s account executives for your sales team or any other role that helps you grow revenue, you want to have a handle on how quickly you can fill these roles when hiring picks up again.
Because Gem speeds time-to-hire for these revenue-generating roles (since sourcers source 5x faster with Gem’s automation, those outbound candidates are 5x more likely to be hired than inbound candidates are, and Gem’s analytics help optimize your hiring funnel for candidates in process), it means faster time-to-revenue for your org.
When you’ve been engaging in pipeline building and capacity planning, you’ll be in a great place to demonstrate how much revenue you’re losing or gaining. For example, if you know how many revenue-generating roles you’ll need to hire in the future when hiring picks up again, and you know how many prospective passive candidates you’re nurturing at the top of the funnel, and how many days it takes to make a hire for those roles, you can show how much revenue you’ll be losing while waiting to fill that role.
“Our Sales Ops Manager built out a spreadsheet that tracks the sales hiring we need to do from a revenue perspective: I can sit down with Sales Ops and measure activity against hiring date to know how much revenue we’re losing or gaining. All of that comes from Gem’s data, and it’s what my C-levels want to see as well.”
- Carmen Coleman, Head of Talent @ Envoy
As a TA team, it can feel frustrating when you’re not fully focused on your function of filling roles. But experiencing a hiring slowdown gives you the chance to button up all your processes and do a deep dive into your data. This will help you streamline and structure your work so you’re more efficient today—and ready to hit the ground running once the timing is right to start hiring again.
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