How to calculate the ROI of an ATS?

Present an idea and watch a CEO ask, “What’s the ROI we can expect?” ROI enters the discussion in every decision that leaders have to make. If you’re reading this, there’s a good chance you were asked about the ROI of ATS (either while proposing its idea or implementation.) Well, you’re almost close to knowing the truth about applicant tracking systems.

Firstly, cost is a major consideration when it comes to deciding whether to use a recruitment tool like ATS or stick to in-house recruiting strategies. Many people assume hiring with a recruitment tool is much costly than hiring without it. This can’t be more untrue!

The ROI of recruitment software is only biased when people in the industry see it as something “not in-house.” To be honest, a recruitment tool (like ATS) can’t get anymore “in-house” than your human resources department. It’s a tool you own, and something you leverage for the benefit of your company, its recruitment challenges and much more.

The reality is: there are hundreds of costs linked with the hiring process, all of which mount up to ten thousands of dollars. The point of this article is focused on giving you a reality-check on how much you’re spending on your recruitment v/s how much you can actually save with an ATS. So buckle up, sit tight and get ready for a whistle-tour of your ideal applicant tracking system and learn how to calculate the ROI of an ATS.

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Also read: A day in the life of a recruiter: What people think we do vs What we actually do

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Top 4 ROI of ATS

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1. Increased quality of hire

A bad apple spoils the bunch, or so to speak. Why?

When a disengaged hire doesn’t pull his weight, good employees get burned out making up for it. A bad hire’s effect on company culture echoes beyond the employee’s tenure.

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“I once hired a Manager who built a chaotic, everything’s-a-fire-drill environment,” said Falon Fatemi, “Even after removing the employee from the equation, we still had to invest time and resources to reset the behaviours of team members who emulated the manager’s approach.”

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Without ATS

The average cost of a bad hire is up to 30% of the employee’s first-year earnings, says U.S Department of Labour.

Say you looked for the wrong traits in an applicant and ended up making a bad hire for an opening. Now let’s assume that this brand new employee took home $45,000 in his first year. What he cost was 30% of this amount, so, the lost you face is $15,750 per bad hire annually.

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With ATS

For the sake of welcoming regret, imagine if you had invested in an ATS that costs $1,548 annually ($129 per month X 12). So if you had…you would’ve (without much efforts) saved a whole lot of $14,202!

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2. Reduced time to hire

The longer you take to hire someone, the more costly it is for your company. This is where you have a direct impact on the bottom line. The quicker you hire qualified candidates, the quicker they are trained.

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Understanding the impact of a vacant opening

To understand what a vacant position is costing you, let’s use a simple multiplier approach using a single job position with a salary of $75K. Now let’s say the no. of working days in a year is 220.

Annual salary of an employee / No. of working days in a year = Income of a salaried employee per day

75,000 / 220 = $340.91 / day

Now how do you know the revenue generated by this employee? The facts state most employees across industries generate revenue between 1 to 3 times of their yearly salary. Let’s stick to the middle ground and keep 2 as our revenue-multiplier for the above $340.91.

Daily income of a salaried employee x Times of revenue generated by the employee = Cost of a vacant position per day

$340.91 X 2 = $681.82 daily

Now a vacant position is costing you $681 per day, which means, you lose $3,409.10 over a five-day workweek. We can now agree there’s a lot you’re staking by ignoring the cost of a vacant position.

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See: How to Reduce Time to Hire

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Without ATS

Hours spent hiring = 30 hours per week

Amount of money your company spends on hiring per month = Hours spent hiring per week X  Cost of HR’s hourly rate

Let’s suppose your HR spent 30 hours per week to hire a candidate and HR’s hourly rate is $20.

Amount of money your company spends hiring per month: 30 X 20 = $600

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With ATS

An applicant tracking system easily cuts off HR’s burden by at least 30% and cost as little as $37 per week, depending on which one you choose. (Did we mention that peopleHum’s ATS is absolutely free for a month?)

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Just for one member of your hiring team who is now using an ATS, that's a weekly savings of $163 ($652 per month!) or a 440 percent ROI of ATS.

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3. Reduced turnover rates

As you saw above, there are several benefits of ATS that improve your recruitment process. But what if you’re not looking to hiring someone in the near future? Is it still worth to spend money on an ATS?

The answer is: Yes, absolutely. There are advantages of ATS even when you’re not hiring. One such area where it helps you is retention and turnover i.e., no. of people leaving your organisation. No matter how dedicated your team, you always have to be on the watch out for turnover. Whether it be for a change in the career path or even a better job offer, you have to be prepared for your employees to possibly leave your company.

But with an ATS, you can reduce turnover rates by making sure you hire the right people - the ones who are not likely to leave. Moreover, you’ll always be prepared to manage turnover crisis if you already have a potential candidate ready to be contacted. Meaning, ATS helps set up your own database of preciously assessed qualified candidates this is how you can calculate the ROI of an ATS.

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Without ATS

Let’s give the value of A and B to the two main metrics you’ll need to look at - number of people quitting (A) and average cost of those quits (B).

No. of people quitting (A) = No. of employees X Annual turnover %

Average cost of those quits (B) = Cost of hiring + Cost of onboarding/training + Cost of learning and development + Cost of time with the new vacant role.

A X B = Annual cost of turnover

Now let’s suppose you’re a 100 person company with a 10% of annual turnover rate.

Number of people quitting (A) = 10

You end up spending $20,000 per person on hiring and learning & development, $10,000 for onboarding, and lose $40,000 in average lost of productivity due to the time it takes to refill a role

Average cost of those quits (B) = $70,000

A X B = Annual cost of turnover.

10 x 70,000 = $700,000. That’s your annual cost of turnover!

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With ATS

For the sake of it, let’s go to the lowest and suppose your ATS can reduce this number down by atleast 20%. Still, with the help of an ATS, you save $140,000.

Not to mention lowering the toll that a cherished team member's departure has on overall employee engagement and productivity.

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4. Enhanced new hires’ productivity

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Without ATS

After onboarding is done, new hires function at about 25% productivity. Here we can say the cost of lost productivity is the remaining 75% of the Employee’s Monthly Salary.

Now let’s suppose an average monthly salary of an employee is $4000. If 75% is the cost of loss productivity, one new hire is costing you $3000 per month (that’s 75% of $4000). But this not where it stops. What if you onboarded more than one employee a month?

Let’s assume you onboarded 3 new hires. Now the productivity loss gets multiplied by thrice, i.e  $12,000/ month ($3000 x 3.) To add more pain to the process, Harvard Business School said an average Mid-level Manager has to be with the company for more than 6 months to actually become productive.

Call this an end and multiply $12,000 to the period of 6 months. You’re again at a loss of $72,000! This is what only 3 hires are costing you in a span of just 6 months.

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With ATS

Perhaps the biggest ROI of recruitment software is the time saved on moving an employee from applicant status into an actionable position. Why, because it takes time for a new hire to function with productivity. Before reaching the productivity phase, the employee is just costing the company because of the training and learning the ropes.

So by speeding this process up, an ATS can help a company save a lot of money on recruiting costs. It reduces the time in which a company is operating understaffed. And it does everything from gathering personal details, proof of address and identity, arranging e-sign of contracts, requesting bank details - all of which can make the workload quite heavy on both the HR and the candidate.

Meaning - news hires more likely to start with a positive mindset. Otherwise, the idea of signing heaps of forms and setting up on multiple systems can be a little daunting when starting a new role. A disjoined onboarding will only accentuate this painpoint.

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Final words

As the year 2023 progresses, businesses of all sizes will confront recruiting challenges. If your firm wants to accomplish their talent acquisition goals, you must ensure your recruiting processes are set up for success.

Providing a positive candidate experience, increasing productivity, conserving money, and remaining compliant all contribute to a successful recruiting year. All of this and more may be accomplished with the listed ROI of ATS.