To get the approval you need for purchasing a new tool, or to justify the expense to your team, you’ll have to prove that a robust ROI is in the cards. Let’s look at how you can achieve this with relative ease using projective analysis.
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Ensuring great talent acquisition and an engaged workforce for your company at an optimal cost is more attainable if you use excellent HR Technology. But how do you know whether the expense is worth the potential gain?
To get the approval you need for purchasing a new tool, or to justify the expense to your team, you’ll have to prove that a robust ROI (return on investment) is in the cards. Let’s look at how you can achieve this with relative ease using projective analysis.
When we take on a project, it’s easy to think of the completed outcome as the ROI. But these two things are not the same.
For example, let’s say the user experience of your career site on mobile devices is very poor. Based on mobile visits you get to the site that don’t result in applications submitted, you identify this as a problem. In fact, based on the conversion rate of visits to applications on desktop, you estimate that you’re missing out on 50 job applications from mobile users per month.
It’s time to take action, but paying a UX expert and web developer for mobile optimization is going to cost $2000 (yes, this number can be a lot higher! But, sometimes it’s easier to understand smaller numbers). Is it worth spending that money? We’ll have to determine what your ROI will be to answer this question.
In this example, the optimized site is not the ROI, and neither are the additional applications you get once the optimization starts working in your favor. So what is the actual return on investment?
For this scenario, your ROI is the hard dollar amount you gain from making your $2,000 investment.
Let’s say you have 1,000 people visiting your career site per month, including visits from all devices. These visits lead to an average of 100 job applications per month. However, with your optimized site, you expect this number to increase by 50% to 150 applications. You also project that those extra 50 applicants will turn into an extra 5 new hires per month.
Based on industry standards, we will also assume your company has an average cost per hire of $5,000 per employee spent on recruiting agency firms, job ads, etc. The 5 new hires you gain from mobile optimizing your career site don’t incur these costs.
5 x $5,000 in saved recruitment/job board/sourcing/etc fees is $25,000 of savings per month!
That’s $25,000 your company does not have to spend because those new hires will come through the improved channels without any additional recruitment effort. Given that you spent $2,000 on the optimization that led to these savings, you can calculate the first month's ROI like this:
Gain of $25,000 - Investment of $2,000 = Return on Investment (ROI) of $23,000
And that’s just the first month!
Just like in the scenario we looked at above, you can use projective analytics to prove ROI on various HR Tech implementations. Here are a few examples to get your brain churning:
An HRIS comes with the ability to set up automated workflows, automated onboarding, pre-set employee prompts, triggered responses, and other forms of PeopleOps automation.
Automating repetitive administrative HR functions in your organization opens working hours in your HR department. This might allow you to bring sourcing — a function you may currently outsource to an agency — in-house. In this example, the money you save on talent sourcing would be your ROI.
Workers stay with an employer for longer if they receive adequate recognition. In fact, 44% of employees resign because they feel their work is not recognized.
Therefore, implementing an employee recognition platform is good for improving employee experience and reducing employee turnover, but how much does this affect the bottom line?
According to retention statistics, the cost of replacing an employee ranges anywhere from half the lost employee’s annual salary up to triple their annual income, if you’re replacing a middle manager. This includes a dip in productivity that naturally comes with handover, the cost of recruiting and hiring a replacement, and the cost of training the replacement.
For the sake of our example, let’s say you’ve established that the cost of replacing voluntary separations at your company equates to 10% of your annual payroll. That’s not bad, but what if you could bring that figure down to 5%? Depending on the size of your annual salary outlay, that 5% can represent a tidy sum of money — significant gain compared to the cost of a rewards and recognition program.
We all want engaged employees who reliably come to work, are productive, and care about the welfare of the company. But engagement is also important to your profitability.
According to Gallup, the cost of an actively disengaged employee is roughly 34% of their salary. They’ve also found that, in the typical organization, actively disengaged employees constitute 17% of the workforce.
Here’s a calculation to determine the cost of disengagement in your organization:
Now imagine you can cut that number in half, or even reduce it by 20%.
Employee engagement software allows you to do pulse surveys and more in-depth surveys on an ongoing basis. The aggregate data derived from this pinpoints engagement barriers in your organization’s talent management that you can eliminate and monitor in real-time.
Besides the cost of disengagement, the improvements this leads to should also positively influence your cost of employee turnover. Both of these constitute real dollar ROI.
Now that you have a good idea of how to prove the ROI on implementing various types of HR Tech, you can justify implementing these solutions to your CFO, or to your HR team.
The best way to do this is with projections based on your company’s real numbers. Here are some tips that can help convey value in a presentation:
Show the numbers as they currently are, and the same numbers based on the scenario you predict once your HR Tech implementation is up and running. Think of it as a “before and after” sales pitch.
An optimistic estimate is easy to shoot down. If you can prove ROI based on conservative to realistic projections, they won’t have reason to dismiss your proposal.
Keep your calculations in an Excel or Google spreadsheet where you can easily adjust figures based on feedback.
For example, if you’re pitching the mobile optimization we discussed at the top of this article, your CFO might think 50 extra applications is an overestimation. If you have a sheet ready to do the calculations, you can easily update your data to prove that 25 or even 10 extra applications will still result in positive ROI.
Here are some HR Tech ROI calculators to get you started.
The HR Tech space is growing rapidly with tons of impressive solutions that promise the moon and stars to HR leaders. Naturally, we can’t have all the shiny software tools we want, so a process of elimination and decision-making is inevitable. When you do invest in HR Tech, the tool you buy must be right for your needs, and right for your organization.
As the saying goes, the proof is in the pudding and, when it comes to HR Tech, ROI is the ultimate proof of whether a new tool is worth buying.
By the way, SelectSoftware Reviews has an online course that covers ROI on HR Tech in more detail. Watch this video to learn more about it. The course takes about an hour to work through, and signup is free.
Buying HR Software and PeopleOps tools shouldn’t be hard, but there’s a lot out there. SelectSoftware Reviews cuts through the noise and helps you choose the right software for your company by researching vendors, doing demos, and talking to HR industry experts.
Our curated buyer guides list only best-in-class solutions that have proven to drive value. This includes core HR Tech Stack essentials like applicant tracking systems and HRIS platforms, as well as niche solutions. View our buyer guides at SelectSoftwareReviews.com.
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