Hiring solution return on investment (ROI) is the new hot strategy for scaling e-commerce and tech businesses. Simply put, recruitment ROI measures the cost and financial impact of each new hire on your company.
Recent Glassdoor research reveals that the average US company invests about $4,000 and 24 days to recruit a single candidate. This doesn’t include additional expenses like onboarding and HR administration.
Especially for remote companies, ROI solutions are among the most effective strategies to contain hiring costs and focus on product development.
Let’s see what ROI is and why it is one of the top recruiting tips in 2024.
What is Recruitment ROI?
In recruitment, Return On Investment (ROI) is a performance indicator to assess not only an employee’s efficiency, but also its profitability. Recruitment ROI formulas measure the value of an employee making a comparison with hiring and retaining expenses.
Especially in remote teams, ROI strategies are particularly effective. Hiring in-house remote developers, you can cut down office space and commuting expenses, as well as saving on Internet costs and IT assets. Furthermore, you can optimize training and onboarding costs, increasing your return on investment with skilled and long-term employees with deep knowledge of your product and company.
Let’s set an example to visualize how ROI can optimize your recruitment process with remote developers.
Possible Scenario of ROI formula for remote software engineers:
To calculate Recruitment ROI, use the following formula:
- Number of hires and salary:
Your company needs to hire 5 remote developers over the next 12 months, with an average salary of $100,000.
- Total compensation:
In total, you plan to offer a total compensation of $500,000 (5 developers x $100,000).
- Total variable profit contribution:
In this scenario, the variable profit contribution per individual is $240,000. So, for 5 developers, the variable profit contribution is $1,200,000 (5 x $240,000).
- Increase in profit due to productivity:
- Each year, your productivity will increase 20% for each developer with annual profit by $48,000 (0.2 x $240,000 per individual).
- Hiring 5 remote developers, the total increase in profit would be $240,000 (5 x $48,000).
- Over 4 years, the additional variable profit is $960,000 (4 x $240,000).
- Cost of hiring top-third employees:
The cost of hiring 5 top talented remote employees is $200,00, including a four-year pay raise of $100,000; expense of four additional recruiters; LinkedIn Recruiter licenses; and additional onboarding and training costs).
- ROI and payback period:
- In this scenario, ROI is 380%, with a payback period of approximately 10 months.
The payback period is the time taken to recoup the $200,000 investment from the $960,000 additional profit over 4 years, with annual additional profit of $240,000.
To recap, ROI strategies allow you to increase your profit for each employee. In the example of 5 remote developers, it results in a total variable profit contribution of $1,200,000.
ROI Benefits for Remote Teams
Calculating ROI in HR can be tricky, and it can vary depending on your business. In remote companies, you can include in the calculation factors like office space, no commuting, private Internet of employees, and other benefits of having distributed teams. ROI calculation can help you understand how to target your resources.
When it comes to new candidates, ROI indicators can be highly effective and become a benefit for your company’s performance:
1. Calculate the first-year attrition rate
If your new hire leaves before completing the year, you won’t be able to recoup your investment. The costs for new hiring processes will accumulate, impacting profit and overall performance. For this reason, it is essential to invest in the hiring process, with particular attention on implementing interview practices and reference checking.
Hiring globally, the first-year attention rate helps to select a candidate who fits your company culture and set realistic expectations to maximize the performance in the first year.
2. Assess the offer acceptance rate
The Offer Acceptance Rate (OAR) is the percentage of candidates who accept your job offer. This metric indicates the ability of your recruiters in identifying the right candidates before making an offer.
Offering the job to someone who is not really interested means wasting resources for interview rounds, tests, and interactions. Looking at the global market, targeting your hiring process is essential to optimize your resources and increase your future return in investment.
3. Analyze the Application Completion Rate (ACR)
How many people complete your job application is a key indicator to understand how to adjust your hiring strategy. If a high percentage of candidates drop the application because it’s too long or confusing, you won’t give a good impression as a company and risk losing talented candidates.
Especially if you run a remote company, ensuring a smooth application process is a key indicator of how easy it will be for a new hire to onboard.
4. Determine the quality of hire
ROI formulas can help you determine how much a new hire brings to the organization. Individual performance and culture fit cannot be translated into numbers, but they are necessary to increase performance.
Especially in remote teams, this metric helps you assess how to select candidates based on their personality, and implement the internal communication in the long run.
5. Calculate the Time To Hire (TTH)
Hiring in the global market requires time. This metric refers to the time invested in sharing the job ad, going through the hiring process, and the following onboarding. Having an overview of the time spent helps allocate better your internal resources, and benefit from distributed teams working on different time zones.
6. Estimate the Cost Per Hire (CPH)
The cost per hire indicates the average amount spent to fill a vacant position. This metric is essential for effectively planning your recruitment budget and avoiding previous mistakes.
Especially for remote teams, onboarding a new team member can take time and the lower performance impacts the performance. Defining costs for each hire allows you to predict some of these costs, and better manage your team in the future.
3 Ways to Maximize High-ROI Strategies for Remote Businesses
1. Target Talent Pool
Challenge: Which are the best areas to hire remote developers? Depending on the role and level of experience you need, you can target specific geographical areas. However, the remote market is wide, and you might risk attracting unwanted candidates, overwhelming your team and wasting your resources.
Solution:
- The first thing to do to cut down options is to coordinate with your team time zones. Do you need a 24/7 service or to coordinate different departments?
- The second thing is to consider language skills and cultural differences. In smaller remote teams, it is essential to keep clear communications to avoid frictions and misunderstandings.
- Check local living costs to see where you can offer a competitive salary while optimizing your hiring budget.
Pro Tip: To target specific areas, you can share your job ad on remote job platforms and specify the interested areas in the descriptions to avoid unmatchable candidatures.
2. Set Up a Solid Onboarding Process
Challenge: Working in distributed teams can be confusing, and new hires might need more time to adjust and get to know the company. As a result, your product development or service might suffer a slow down or lower performance impacting your quarterly revenues.
Solution: It is essential to coordinate with your existing team and set a clear onboarding process and share a comprehensive company handbook to ensure effective communications.
Pro Tip: Especially for remote development teams, it is fundamental to have a clear software architecture to ensure a smooth service for your users. Implementing solutions as code refactoring or Agile strategies can support you to scale your company and expand your company over time.
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3. Define Your HR Strategies
Challenge: Global hiring means adjusting your hiring practices to different labor regulations, salary standards, and tax systems. While this can benefit your company, it can also require extensive research to find hiring incentives related to different areas, skills standards, talent distribution, and so on.
Solution: Implement your HR team hiring someone specialized in international labor law to avoid extra cost for regulation and time to your product development.
Pro Tip: If you are scaling globally distributed, it is worth considering collaborating with remote recruitment agencies to have specialized support in different areas. Agencies like DistantJob not only can help you target the right area, but also support your HR for the following year to ensure a smooth onboarding on both sides.
Conclusion
Hiring solution return on investment is an effective recruitment strategy for remote businesses of different scales. Its metrics and KPIs can help you and your team target your resources and focus on your business growth. However, companies like DistantJob can help you set up not only your hiring process, but also your HR and onboarding. We understand how overwhelming it is to peek at the right candidate in the global market, and our recruiters know which area to target based on the skills you need.
Contact us to scale your business!
