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How to Measure ROI in Healthcare Recruiting

Measuring Return on Investment in Healthcare Recruiting
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In healthcare, as with most industries, talent shortages, skills gaps, and low unemployment are challenging recruiters and hiring managers. Hiring quickly to fill pressing needs often results in a higher spend on the recruitment process. But, for routine hires and sourcing is it worthwhile to calculate Return on Investment (ROI)?

The most common and most easily calculated metric HR Departments use is Cost per Hire (CPH). CPH assesses all the costs of the recruitment process: recruiter salaries and benefits, advertising costs, search firms, ATS software, job fair expenditures, relocation costs, and more. This number, divided by the number of hires per year, is your CPH. But CPH can be misleading. The costs of hiring a single person within that year’s worth of effort may have been significantly more than another: an executive search that required outsourcing versus a non-medical staff member.

More Than Cost Per Hire

If an institution spends $100,000.00 per year hiring 100 employees, CPH is then $1,000.00 per new hire, an easy calculation. But if 50% of those new hires quit within the first week on the job, what is your real CPH? CPH doesn’t factor in the success of the hire, only whether or not it was affected. For legitimate return on the investment, the hire must be successful, and that’s where ROI metrics are more insightful into the process itself.

ROI versus CPH

ROI is calculated by the amount spent on a specific hire, and it goes further to add in costs post-offer: training time, lost production, etc., to measure the actual costs involved in affecting the hire and whether it was worthy of the effort. Beyond the cost to bring a staff member on board, ROI can be used to calculate the actual time it takes to repay the investment in the new hire.

Think Like a Lawyer

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While few institutions even calculate CPH, even fewer consider ROI. Perhaps it’s time for healthcare recruitment to consider going to billable hours, similar to law firms. How many labor hours are put into a particular hire, and at what rate? Is HR the only group involved, or are managers, at a different rate of pay, taking time to meet with candidates?

What are the associated costs – advertising, applicant tracking software licenses and fees, employee referral costs, background and drug screens, etc. How many interviews per hire were needed? What was the quality of the source? Was there a sufficient amount of candidates from which to choose in a reasonable amount of time? All these costs added together can be calculated and weighed against the individual hire.

A basic metric to start you thinking about calculating ROI is the applicant funnel. What results are you getting based on your methods to source?

  • Number of new candidates by source
    • Job boards
    • Recruitment agency
    • Referrals
    • Other
  • Number of existing candidates who may be considered
    • Those already in your system from a previous posting
    • Those who applied for another opening and may be converted

From here you can easily calculate the value of each source’s candidates. If one source is consistently giving you the majority of candidates, you might consider eliminating others. However, before you do that, consider a few more data points:

  • Number of applicants received to the number of interviews offered
  • Number of interviews that resulted in a job offer
  • Number of offers that were accepted
  • How much time did it take in hours/days/weeks to turn the applicant into a new hire?
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Finally, work backward to see how many accepted offers you netted from each source and the timeline it took to achieve those hires. The results may surprise you and get you thinking about improving the quality of your sourcing.

Take the Data and Run

You now have a clear idea of what it costs to hire, where you’re receiving your highest quality of candidates, and how long it takes from application to start date. Comparing these data points with similar positions throughout your hiring cycle will help you find areas that are working and those that can improve. With the data at your disposal, you may find other information as well – places in the pipeline where lag time is unacceptable or costs are too high.

Beyond Day One

For true return on investment, it’s beneficial to calculate the quality of the hire beyond the start date. Consider training costs, how long it takes to reach peak productivity, turnover rate, performance, etc. Setting baselines for each of these could be important. If the average training time for an employee at a specific level is 5 days, what are the costs for the new hire and/or trainer? Is the new hire meeting goals and expectations at the end, or is additional training required – at what cost?

What is your baseline for retention? What is your expectation for an employee to hit productivity goals? While these may vary from job to job, determining acceptable timelines for new hires is important.

Calculating True Return on Investment

To truly calculate ROI takes time and energy, but the results can be rewarding and enlightening. Determining ROI on recruitment alone is easy: work backward to see where you are finding quality candidates that end up as new hires, and apply the associated costs to the hire.

For quality of hire ROI, look at the longer-term data. Did the hire meet expected milestones and move to full productivity in a reasonable time frame? Were they retained beyond your expected tenure allotment? This longer view of data, combined with the information you generated at the time of hire, can show where your recruitment efforts are the most impactful and where you may need to rethink processes.

What is the actual return on your investment? It will vary. To calculate this final number, you’ll need a set of variables: how much did you save by filling the opening – in overtime wages for others to cover, lost productivity, how much did you earn by filling the position? These, along with costs, determine your return. But there are other “soft” factors that may be as important: morale decreases when vacancies are left unfilled; other workers may be impacted by additional workload and may leave. The actual return on your investment may be more than a dollar amount, but knowing what your real costs to hire and retain are invaluable.

For some positions, you’ll recruit only rarely, but for other spots, having this data to compare across a host of hires can be invaluable. The ability to look throughout the process to see where you’re getting the most return allows HR and hiring managers to eliminate time-wasting recruitment efforts and focus on getting results.

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About Riia O'Donnell

Riia O’Donnell has over 20 year’s hands-on experience in all aspects of the Human Resource function. Beginning as a recruiter, she grew to lead in all areas of HR, including employee training and development, legal compliance, benefits administration, compensation evaluation, and staff management. She has been a contributing writer for a wealth of HR, training, and small business websites for the past 7 years.
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