Traditionally, the conversation surrounding Applicant Tracking Systems (ATS) revolves heavily around cost. Businesses weigh the upfront investment and ongoing licensing fees against the perceived benefits of improved efficiency. However, this approach paints an incomplete picture. The true value of an ATS lies in its Return on Investment (ROI), a metric that goes beyond basic costs to capture the wider impact on your recruitment efforts.

This blog dives deep into calculating the ROI of an ATS, providing a detailed framework that considers not just the price tag, but also the significant improvements it can bring to hiring quality, time-to-hire, and administrative costs.

Let's be clear: implementing an ATS does involve upfront costs. These include software licensing fees, setup and integration costs, and ongoing maintenance charges. These factors are important, and budgeting is crucial. However, focusing solely on these costs overlooks the potential savings and revenue gains an ATS can unlock.

Read: What should you ask when purchasing an Applicant Tracking System?

The real value of an ATS lies in its ability to streamline your entire recruitment process, leading to significant improvements in key areas. Here's how an ATS can boost your ROI:

Improved Hiring Quality

A robust ATS helps you screen out unqualified applicants, focusing your efforts on top talent. Features like skills-based matching and automated resume parsing ensure you identify candidates with the right qualifications and experience. This translates into tangible benefits:

• Reduced Employee Turnover: Hiring the right people from the start leads to happier, more engaged employees who stay with your company longer. Lower turnover reduces costs associated with rehiring and onboarding new staff. Studies by the Society for Human Resource Management (SHRM) show that the cost of replacing a salaried employee can reach up to 20% of their annual salary. An ATS can significantly reduce these costs by ensuring a better fit from the outset.

• Increased Productivity: Hiring qualified candidates who possess the necessary skills allows them to hit the ground running, contributing to higher overall team productivity. A study by Aberdeen Group found that companies with a strong talent acquisition strategy experience 21% higher profitability.

• Improved Customer Satisfaction: When you have the right people in place, you can deliver better customer service, leading to higher satisfaction and loyalty. Loyal customers are more likely to become repeat customers and recommend your brand to others.

Reduced Time-to-Hire

An ATS streamlines the recruitment process by automating administrative tasks and simplifying workflows. Here's how:

• Faster Resume Screening and Candidate Selection: ATS features like automated keyword filtering and skills matching significantly reduce the time it takes to identify qualified candidates. Instead of manually sifting through hundreds of resumes, you can quickly narrow down the pool to the most promising applicants.

• Automated Scheduling and Interview Management: Scheduling tools within an ATS eliminate back-and-forth emails and allow candidates to choose interview slots at their convenience easily. This speeds up the hiring process for both you and the candidates, creating a more positive candidate experience.

The impact of a reduced time-to-hire is undeniable:

• Reduced Recruitment Costs: The longer a position remains vacant, the more it costs your company in lost productivity and potential revenue. A faster hiring process leads to cost savings. According to a study by Bersin by Deloitte, companies that take too long to fill open positions can lose up to 31% of a candidate's first-year potential productivity.

• Improved Employer Branding:  Candidates appreciate a swift and transparent hiring process. This reflects positively on your employer brand, attracting a wider pool of qualified talent. In today's competitive job market, employer branding is crucial for attracting top performers.

• Filling Open Positions Faster:  Filling vacancies quickly ensures you have the right people in place to handle business demands, minimizing operational disruptions. A well-staffed team can operate more efficiently and effectively, achieving your business goals faster.

Decreased Administrative Costs

An ATS automates many time-consuming administrative tasks, freeing up valuable HR resources. Here's how:

• Job Posting Management: Easily post jobs across multiple platforms with just a few clicks, saving time and effort compared to manual posting. Additionally, some ATS systems can integrate with your company career page, ensuring consistency and reducing the risk of errors.

• Candidate Communication: Automated email templates and communication workflows streamline candidate outreach and updates. You can set up automated emails to acknowledge applications, schedule interviews, and keep candidates informed throughout the process.

• Reporting and Analytics: Generate insightful reports on your recruitment efforts, allowing you to identify areas for improvement and make data-driven decisions. Track key metrics like time-to-hire, source of hire, and cost-per-hire to optimize your recruitment strategies.

• Improved HR Efficiency: Automating repetitive tasks frees up HR professionals to focus on strategic initiatives like talent development and employer branding.  This allows them to focus on higher-level activities that contribute to the long-term success of the organization.

• More Time for Strategic Talent Acquisition Initiatives:  With less time spent on administrative tasks, HR teams can dedicate more resources to developing and implementing targeted talent acquisition strategies.  This could involve building relationships with universities, attending industry events, or creating engaging employer branding campaigns.

Building an ATS ROI Framework

Now that we've explored the key areas where an ATS can deliver significant value, let's move on to calculating the actual ROI. Here's a step-by-step framework to get you started:

Define Key Performance Indicators (KPIs) for Each Value Category:

• Improved Hiring Quality:  Potential KPIs include reduced employee turnover rate, increased time to first promotion, and improved customer satisfaction scores.

• Reduced Time-to-Hire: Track time-to-hire metrics like days to fill a vacancy and offer acceptance rate.

• Decreased Administrative Costs: Monitor metrics like time spent on screening resumes, number of interview scheduling emails sent, and cost-per-hire.

• Assign a Dollar Value to Improvements in Each KPI:
  This step requires research and analysis specific to your company. Consider factors like average employee salary, cost of lost productivity during vacancies, and historical recruitment costs.

• Calculate the Total Cost Savings and Revenue Gains Attributable to the ATS:
  Multiply the improvement in each KPI by its assigned dollar value.  For example, if the ATS reduces time-to-hire by 10 days and this translates to $5,000 in cost savings per hire, multiply 10 days by $5,000 to get a total cost saving of $50,000. Repeat this calculation for each KPI.

• Divide Total Benefits by Total Costs to Calculate the ROI Percentage:
  Once you have calculated the total cost savings and revenue gains from an ATS, divide this number by the total cost of implementing and maintaining the system. This will give you a percentage that represents the return on your investment.

Additional Considerations for ROI Assessment

While quantifiable metrics play a crucial role in ROI calculations, it's important to consider qualitative factors as well:

• Improved Employer Brand: A smooth and efficient candidate experience fostered by an ATS can enhance your employer brand, attracting a wider pool of top talent. This can lead to long-term benefits like reduced recruiting costs and higher employee retention.

• Increased Employee Morale and Retention: Selecting the right people from the start contributes to a happier and more engaged workforce.  When employees feel valued and well-matched to their roles, they're more likely to stay with the company.

• Enhanced Data-Driven Decision Making: Recruitment data gathered through the ATS allows you to make informed decisions about your hiring strategies.  You can track recruitment trends, analyze candidate pools, and identify areas for improvement to continuously refine your talent acquisition process.

Calculating ROI goes beyond simply crunching numbers. It's about understanding the true value an ATS can deliver to your recruitment process. By focusing on improvements in hiring quality, reduced time-to-hire, and decreased administrative costs, you can gain a comprehensive picture of the return on your investment. Utilize the framework provided to assess the potential ROI of an ATS for your specific needs and make a data-driven decision about implementing this powerful recruitment technology. 

Remember, an ATS is not just an expense; it's an investment in building a strong talent pipeline for the future success of your company.