How to calculate the ROI of an ATS: A step-by-step guide
Great news! You’ve done a lot of research, read a lot of reviews and sat through endless product demos – and finally selected the best applicant tracking system for your business. The bad news? You still need to get approval from finance.
Don’t be discouraged! We’ve got four simple calculations to help you break down the ROI of an ATS and build a rock-solid business case.
1. Avoid bad hires
A bad hire is shorthand for a new employee who leaves the business within 12 months of their hire date. The US Department of Labor estimates that the individual cost of a bad hiring decision is roughly equivalent to 30% of that new hire’s first year salary.
Bad hires can be especially costly. For one, a longer time to ramp can result in delays in other areas of the business, such as a product launch. Even after all that time and training, a bad hire may never ultimately realize their revenue-producing potential at your organization.
In short, you have no choice but to cut your losses and start over with a new hire.
So, how can you quantify the cost of all bad hires to your business? First, you need to estimate a few numbers:
- Estimated number of hires in the next 12 months
- Average % of new hires that leave w/in 12 months
- Average employee salary
Once you have those numbers, it’s time to start calculating. Follow this formula:
Cost of Bad Hires Calculation
For example – let’s say your company is planning to hire 20 new employees this year.
The average salary of those 20 employees is $55,000.
Historically, 15% of your new hires churn within the first year.
(Avg. employee salary) * (30%) * ((estimated # of hires in the next 12 months) * (% of hires that leave w/in 12 months)) = Annual cost of bad hires
First, multiply that average salary of $55,000 by 30% to calculate the cost of one bad hire. Then multiply that by the projected number of bad hires in a year (20 employees * 15% churn).
That brings your total annual cost of bad hires to your business to $49,500.
Total Annual Savings: Avoiding Bad Hires Calculation
Now, in this same example, using the formula below, imagine you’re able to decrease bad hires by 25% using the ATS you’ve selected. It’s as easy as taking that $49,500 total above and multiplying it by 25%.
(Annual cost of bad hires) * (% decrease in bad hires) = Total annual savings from avoiding bad hires
That totals $12,375 in bad hires, alone – a worthy addition to the ROI of an ATS.
So, how does a good ATS help you avoid bad hires? It helps you:
- Find more qualified and diverse candidates to choose from. With Workable, you can find more qualified candidates using proactive sourcing tools like AI Recruiter, People Search and Referrals.
- Make better hiring decisions with fair and consistent evaluations. With Workable, use standard interview kits and scorecards, objective cognitive pre-employment assessments, and one-way video interviews to help you screen more thoroughly at scale.
- Engage your hiring managers from the start. With Workable’s click-efficient UI, global support and industry-leading mobile app, hiring managers will be more engaged throughout the entire process.
2. Reduce external costs
Think about all of the extra money you spend on different softwares and services in your tech stack – can you eliminate any of them with a good ATS? In the short term, your ATS will cost money, but in the long term it can actually save you money.
With Workable, for example, most customers can rely less on external agencies and costly third-party sourcing tools because Workable has a full suite of sourcing features built right into the ATS.
Now, you need to show that to finance. How can you calculate the reduction in external costs to your business with an ATS? Think about the following:
- Average annual spend on job boards and third-party sourcing tools
- Average annual spend on agency fees
- Average annual spend on third-party tools (like e-signatures, assessments providers, video interview providers, texting providers, etc.)
First, add these costs together to understand the total cost of all of your external recruitment tools. Then, think about which ones a good ATS can help with. You’ll find that you can reduce some costs – and eliminate others outright. Remember, in the eyes of finance, every little bit of savings helps.
For example, if you can decrease reliance on expensive external staffing agencies by just 20% AND get rid of just one other third-party subscription, the combined savings from these alone will likely far outweigh the cost of the ATS you’re asking finance to approve.
Total Annual External Costs Calculation
Let’s try out this scenario: every year, your company spends $20,000 on sponsored job posts and third-party sourcing tools. Add to that another $37,000 on agency fees, bringing that total to $57,000.
That’s not all; there’s another $15,000 being spent per year in combined costs for e-signature software to get those employment contracts signed, plus a texting tool so you can quickly contact interested applicants.
Just put them all together into one tidy sum: your total external costs per year.
(Avg. annual spend on job boards and third-party sourcing tools) + (Avg. annual spend on agency fees) + (Average annual spend on other third-party tools) = Total external costs per year
In this case, the total annual cost to your business of these external tools amounts to $72,000.
Total Annual Savings: Reducing External Costs Calculation
Now, imagine that you decrease the reliance on your sponsored posts and external agencies by just 20% now that you’re able to use passive sourcing features and a referrals platform. Plus, the new ATS includes e-signature offer letters and texting built right into the software – so you can fully eliminate the cost of those subscriptions.
So, in this case, you take that $57,000 spent on agencies, sponsored posts, and other third-party sourcing tools, multiply that by 20% – bringing the total to $11,400.
((Annual spend on agencies, sponsored posts and third-party sourcing tools) * (% decrease in)) + (Average annual spend on other third-party tools)) = Total annual savings from reducing external costs
Add the annual costs of the other third-party tools ($15,000), and you have $26,400 saved in external recruitment costs with the addition of an ATS. That’s a compelling addition when presenting the ROI of an ATS.
So, how does a good ATS help you reduce external costs?
- Native sourcing tools bring sourcing in-house. With Workable, best-fit candidates are automatically recommended for every job. Prefer to reach those candidates via social media channels? Workable makes it easy to extend your reach through custom Facebook and Instagram campaigns to those highly valued passive candidates.
- Most hiring teams rely on a suite of tools from different providers to get hiring done. With Workable, most of those tools are built right into the ATS, eliminating the need for additional, costly subscriptions. Native video interviews, assessments, texting and e-signatures not only save your organization money, but they create a more natural and cohesive candidate experience.
3. Increase recruiter productivity
One way to demonstrate the value an ATS provides is to calculate the bottom-line impact of a more productive recruiting team. This is especially important for scaling companies, where the talent team is often asked to do a lot more with the same resources – or in some cases, leaner teams and budgets.
Our first impulse is to often use time-saved to demonstrate ROI — but for a finance team that’s focused more on revenue, time doesn’t always calculate well. Yet, you can still make a strong impression on your C-suite and decision makers when you highlight the real value of time in terms of salary.
So, what’s the best way to calculate this? You’ll need these inputs:
- Number of recruiters on your team
- Average recruiter salary + benefits
- Estimated increase in productivity
Added Recruiter Productivity Calculation
Now, let’s say there are three recruiters on your team, with an average salary of $71,500 (including benefits). You can increase the productivity of the team by 20% with an ATS that reduces or even eliminates bottlenecks via automated email scheduling, automatic approval workflows, and more engaged hiring managers.
You’re looking at total cost savings of $42,900 – that’s over half the cost of an additional recruiter! That speaks volumes for the ROI of an ATS.
Total Annual Savings: Increased Recruiter Productivity Calculation
(Number of recruiters) X (Average salary + benefits) X (% increase in productivity) = Total cost savings from increased recruiter productivity
So, how does a good ATS help you increase recruiter productivity?
- Intelligent automations that eliminate tedious, administrative tasks and reduce human error. With Workable, automated actions keep interview scheduling and candidate communication completely streamlined.
- Engagement and collaboration is key. Your ATS should keep the entire hiring team engaged from the start. Workable’s mobile app is the perfect personal hiring assistant for busy hiring managers, and our two-way email and calendar sync keeps all communication easy to find in one place.
4. Decreased time to fill
Reducing time to hire and time to fill are at the top of every recruiter’s wishlist. And, at first, it seems pretty straightforward to measure. After all, if your time to fill was reduced to 29 days from 36 days after you implemented your ATS, it stands to reason that your new ATS reduced your time to fill by seven days. Pretty simple stuff, right?
But, that doesn’t really tell the whole story. Reducing time to fill can have a massive impact on your business. With a few simple calculations, you can help your C-suite understand how critical that seven-day reduction can be to the success of your organization.
So, how can you better quantify the ROI of decreasing time to fill?
You’ll need a few key inputs for this one:
- Current time to hire
- Desired time to hire (what you think a good ATS will help you achieve)
- Estimated number of hires in the next 12 months
- Annual company revenue
- Number of full-time employees in your company
Total Cost of Time to Fill Calculation
Calculating the total cost of our time to fill will take a few steps. The first thing we’ll do is calculate revenue per employee:
(Annual company revenue) / (Number of full-time employees) = Revenue per employee
Next, we’re going to to calculate the cost of vacancy, per day using 220 (roughly the number of working days in a calendar year if you’re in the US, for instance):
(Revenue per employee) / (220) = Cost of vacancy per day
To calculate the total vacancy cost for your organization, simply multiply cost of vacancy per day by current time to fill and the number of estimated hires for the next 12 months:
((Cost of vacancy per day) * (current time to fill)) * (Number of estimated hires in the next 12 months) = Total cost of time to fill
For example: you’re a company with $2.9 million in revenue. You have 60 full-time employees and you want to add 30 more over the next 12 months. This means your revenue per employee is roughly $48,300. Divide that by 220 working days, and you have a cost of vacancy per day of roughly $220.
Multiply that cost of vacancy per day by those 30 additional employees you plan to hire, and multiply that by your current time to fill of 36 days – and your total cost of time to fill is about $237,600.
With that, you can calculate the total annual savings when you decrease your time to fill by seven days. That calculation can give you a pretty compelling case when presenting the ROI of an ATS.
Let’s give it a try: subtract the desired time to fill from the current time to fill (resulting in seven days in this case), and multiply that by the cost of vacancy per day ($220).
(Current time to fill – desired time to fill) * (Cost of vacancy per day) = Money saved per hire
The result is your money saved per hire, which totals $1,538.
Total Annual Savings: Decreased Time to Hire Calculation
You can then project your savings out over the entire year when you multiply your money saved per hire ($1,540) by the 30 hires planned over the next 12 months.
(Money saved per hire) X (Number of estimated hires in the next 12 months) = Total annual savings from decreased time to hire
The result is your total annual savings from your decreased time to fill, which in this scenario would be $46,200. Your ROI of an ATS just got even stronger!
So, how does a good ATS help you decrease time to fill? It helps you:
- Attract more qualified candidates. The faster the right candidates find you, the faster you can hire them! With Workable, you can expand your reach with one-click job board posting and boost your brand with a highly customizable and engaging careers page.
- Create a modern candidate experience. From the moment a candidate applies to the moment they (electronically!) sign the job offer – Workable is designed to make it easy, fast and enjoyable for candidates to move through the process.
5. Total ROI of an ATS: Putting it all together
Now that you’ve done your research, gathered all the inputs and made your calculations, it’s time to put it all together into one compelling case. Here, you’ll want to show all of the expected monetary savings, along with the added value the ATS provides.
Using the examples and calculations above, here’s how you can pull it all together into a simple sheet presenting the ROI of an ATS:
Total Potential Savings
Annual Savings – ROI of an ATS
Avoiding bad hires
*By expanding candidate reach through referrals and syndicated job board networks.
*By reaching more diverse candidates and mitigating bias through anonymized screening.
*With structured evaluations using video interviews, assessments and scorecards.
Reducing external costs
*With built-in passive candidates sourcing tools to help fill niche roles.
*Through native solutions like video interviews, assessments, texting, e-signatures and more.
Increasing recruiter productivity
*With intelligent automation that eliminates tedious administrative tasks and human error
*Through click-efficient UI, global support and mobile app to keep hiring managers engaged
Decreasing time to fill
*By increasing qualified candidates
*Through a modern, remote-friendly candidate experience
*With an engaged and collaborative hiring team