Submitted on Thu 12 Sep 2024
The latest government figures show an encouraging 12 percentage point drop in the employer ‘recruitment difficulty rate’ over the past year. But that’s cold comfort if you’re one of the 47% of employers still finding it hard to secure the right staff.
Some of this drop in recruitment difficulty may point to the increasing number of businesses turning to strategic recruitment outsourcing solutions, such as Recruitment Process Outsourcing (RPO). It’s no surprise then that the APAC RPO market is set to grow by an astounding $5.49 billion by 2028.
The benefits of RPO underpin its popularity amongst HR leaders. It’s a shift from traditional recruitment - which centres on filling specific roles - as it’s a strategic partnership with a specialist recruiter. They take full responsibility for the entire hiring cycle, from policy and sourcing right through to onboarding.
But is it worth it?
That’s where this article comes in. It will help you gauge RPO value by looking at its return on investment (ROI), with a specific focus on key metrics and how to calculate RPO ROI.
Why measure the ROI of RPO?
Like any business decision, you must be able to justify the costs. Measuring RPO value helps ensure you’ve made the correct RPO provider selection, one that offers you optimal financial benefit.
But there’s another key benefit when measuring the ROI of RPO - the metrics used provide deep visibility into the recruitment process, allowing for immediate adjustment if necessary. In particular, the data is extremely useful for enhancing your candidate experience and onboarding, both essentials in employee retention.
Key Metrics to Measure RPO Value
Measuring RPO value involves both quantitative and qualitative metrics. The former are straightforward as they involve numbers and ranks, for example cost-per-hire. The latter require deeper analysis and interpretation to determine their value, such as candidate satisfaction.
Here are some of the key metrics to use to measure the ROI of RPO:
Qualitative
Cost Per Hire (CPH)
This measures the average cost to hire per employee. A low CPH is a good indication your provider is delivering optimum recruitment costs savings.
Time To Hire (TTH):
This metric measures the number of days a position remains open before a candidate is placed. Comparing your initial TTH against the RPO solution’s post-implementation should show significant time-to-hire improvement. A shorter TTH clearly demonstrates your provider has an optimised recruitment process, one that allows you to quickly capture top talent before your competitor’s do.
Number Of Applicants
This is the total count of candidates who apply for a position. You’re looking for a high value here as that demonstrates job advertisement and sourcing effectiveness.
Interview To Offer Ratio
This metric measures the percentage of interviews that result in job offers. A high figure demonstrates your provider’s selection prowess and understanding of your company by delivering only the most suited candidates.
Offer To Acceptance Ratio
This is the ratio of job offers made to those accepted by candidates. A high number indicates a successful candidate experience that effectively communicates the value and expectations of the role and your company.
Employee Turnover Rate
This metric reveals the percentage of employees who leave your company within a specific time frame. It speaks to how well (or not) the RPO solution works in sourcing, selecting, onboarding and supporting candidates.
Quantitative
Candidate Quality
This relates to new employee performance over time. It should show an upward trajectory, reflecting how well the RPO solution aligned candidate expectations with the role, as well as its effectiveness in selecting the right one. When measuring, look at job performance, cultural alignment, and the probability of long-term retention.
Candidate Satisfaction
This measures the candidate experience process. A high satisfaction rating equates to a successful RPO partnership - it means you’re benefiting from an optimised recruitment process, one that’s effectively nurturing your employer brand. To calculate this metric, assess things such as overall candidate experience, communication, process transparency, timeliness, feedback opportunities, post-process follow up, and the likelihood that candidates would recommend you to others based on their experience.
In-house HR Functions
This metric assesses the financial and business benefits RPO brings in allowing your in-house HR team to concentrate on strategic initiatives, such as talent development and succession planning. To quantify the value of this metric, estimate the cost savings and productivity gains achieved by freeing up your HR personnels’ time. You can also assess the financial impact of improved employee engagement, retention and business performance.
Calculating the ROI of RPO
There are three central steps in calculating the ROI of RPO:
Step 1 - Quantify Costs
This step involves identifying and quantifying all recruitment costs to give you a clear baseline for the ROI analysis.
Look at:
- Direct costs - The direct costs of RPO vs in-house recruitment including HR personnel salaries, technology investments and external agency fees.
- Indirect costs - Costs such as the time HR managers spend on recruiting activities, legal and compliance efforts, market research, analysis and benchmarking, as well as the impact of lost productivity due to prolonged vacancies and employee turnover.
Your quantitative metrics help here, such as:
- Cost per hire
- Time to fill (assesses the costs of lost productivity)
- Employee turnover (quantifies the costs associated with rehiring and training new employees)
Step 2: Look Beyond The Numbers
This step focuses on capturing the more intangible benefits of RPO, so using your qualitative metrics is appropriate. It involves some analysis to put a dollar figure to the strategic gains RPO offers your business.
Consider quantifying:
- Candidate satisfaction - A positive candidate experience leads to an improved employer brand and attracts future top talent. A satisfied employee also means long-term retention.
- Candidate quality, fit and engagement - Assess the quality of new hires over time, including their productivity and performance, engagement and cultural fit. This indicates how effective RPO is in selecting the right candidates.
- HR functions - Determine the value of maximising the time of your HR personnel, allowing them to engage in more impactful and value-adding activities that future-proof your business, such as succession planning.
- Scalability - Consider RPO scalability benefits, particularly as they allow you to easily adapt to business fluctuations, such as seasonal staffing needs or rapid expansion.
- Market competitiveness - Ascertain the value of being at the forefront of the talent market, being able to agilely adapt to changing recruitment needs and trends with key insights from your RPO provider.
Step 3: Calculate ROI of RPO
ROI calculation formula: 
Plug your values into the formula and the result will show the ROI of RPO. A positive ROI indicates that the benefits of the RPO initiative outweigh the costs.
Example: Total Costs $100,000
Total Benefits $150,000
Net Benefit = $150,000 - $100,000 = $50,000
ROI = $50,000 / $100,000 = 0.5 or 50%
For every dollar spent on RPO, there is a return of $1.50, indicating a positive ROI of 50%.
Further ROI Support
It’s clear measuring the ROI of RPO extends beyond determining cost savings. By evaluating key metrics and understanding qualitative benefits, it’s easier to appreciate the comprehensive value RPO brings, from quicker hiring to improved employer branding and strategic HR focus. This can be particularly helpful if you need to prove that your decision to invest in RPO was well-founded.
If you’d like to find out more about calculating the ROI of RPO, or would like the RPO models explained in further detail, our RPO specialists love to TORC so why not connect with us. See how RPO can revamp your recruitment strategy and perfectly position you to capture the talent you need in this competitive hiring market.
