Greg Troxell, Senior Recruiting Manager at virtual healthcare hub Wheel, wants his department to deliver the most value possible—whether ramping up hiring or (like some recruiting teams right now) only doing backfills to keep the company’s headcount steady.

That’s why he started tracking his recruiter cost ratio earlier this year. He noticed his cost per hire increasing as his number of hires decreased—even though the hiring process hadn’t changed. He needed a way to communicate that his team was still working efficiently.

Recruiter cost ratio works to communicate value even during hiring slowdowns because it measures talent ops spending in relation to the company’s overall investment in its staff. Tracking this type of metric also challenges teams to decrease the cost ratio rather than just their expenditures. A recruiting team with the resources to hire effectively will always have a better recruiter cost ratio than a team on a shoestring budget.

Even if your company is making significant cuts, you can use this metric to show why continued investment in recruiting is a smart move. Here’s what we learned from Greg about optimizing the hiring process using recruiter cost ratio—and how a talent CRM like Gem can help with the process.

Recruiter cost ratio is a holistic measure of your recruiting efforts that compares money spent to value returned.

Metrics like cost per application and cost per hire tend to fluctuate based on the number of hires you make and the roles you’re primarily hiring for. If you only make one hire in a quarter, your cost per hire will look astronomical (even if your hiring methods haven’t changed). The same often happens when companies undergo executive hiring sprees, which require more resources to find and vet candidates.

However, not all hires are equal. Your company’s compensation structure reflects the fact that, for instance, an executive brings more value than a customer service representative. Recruiter cost ratio accounts for this discrepancy.

It’s natural for recruiting spend to fluctuate as a company’s needs change. Tracking your costs in proportion to the compensation of your new hires helps show that increases in spending aren’t necessarily due to decreases in efficiency. Recruiter cost ratio justifies the investments you put into attracting the perfect fit for high-value, high-stakes roles.

Recruiter cost ratio divides the resources spent by resources gained (in terms of employee value) to show the effectiveness of a company’s hiring team. Instead of dividing your costs by the number of hires (which is how you find cost per hire), you divide your expenses by the compensation of new hires. The calculation shows how much you’re spending for each $1 of value added.

Greg tries to keep his recruiter cost ratio between 10% to 13%, whether he’s making one hire a quarter or thirty—which means he has to be smart about resource usage. He keeps his team on track by creating hiring frameworks that work efficiently during slowdowns and are easy to scale when the company is in growth mode.

Cost-cutting is typically a company’s first answer to lowering its recruiter cost ratio—but it’s not always the best answer. Remember, this metric is about hiring efficiency. And efficiency isn’t about spending the lowest amount of money possible—it’s about making the most of your resources.

A cuts-first approach to improving your recruiter cost ratio tends to hollow out teams or tools that are (or will be) necessary. Greg reminds us that hiring is an investment your company makes in order to find and attract top-tier talent. A better process that leads to better hires will do more for your recruiter cost ratio than cutting resources your team relies on. Follow these optimization tips to uncover and fix inefficient processes.

Recruiting teams can’t do their best work without a robust hiring tech stack, but rather than investing in more tools to meet your needs, look for versatile tools. Greg has improved Wheel’s recruiter cost ratio by choosing multi-functional software that does the work of multiple individual tools.

Rather than investing in a sourcing solution, an email automation app, and a data analytics tool, his team went all-in on a talent CRM (Gem) that does all three. Streamlining your tech stack could save your company a decent amount of cash while making hiring easier—because when everything is in one piece of software, there’s no wasting time on fussy integrations or building workarounds to share data between your tools.

Having software that automates busywork and administrative processes increases hiring efficiency by giving recruiters more time to spend on sourcing, outreach, and candidate assessment. Rather than depriving your team of the tech that makes their jobs easier, ask yourself whether you can get a better price for the same functionalities.

The current economic moment has led many companies to slow or freeze their hiring efforts, but reorganizations that use today’s economy as a baseline will decrease hiring efficiency. A hiring slowdown is a time for building, not cutting. The more you do to create effective and scalable processes now, the easier you’ll find it to maintain a good recruiter cost ratio when the economy picks up again.

Because hiring efficiently also means hiring well (that is, attracting top talent that will meet expectations and stick around), the foundations you build should focus on your employer branding and candidate experience. Position yourself to find qualified candidates regardless of your resource outlay by:

Creating recruiting materials that clearly express your company’s values and expectations to bring in candidates who are a good match for your company

Revisiting each step of your hiring process to ask whether the time and resources spent on it are justified by its work in narrowing your field to only the most qualified candidates

Reviewing passthrough data for each step of your hiring funnel to determine whether strong candidates are dropping out of your process

Reading candidate feedback to learn where you can improve your candidate experience (or if you don’t collect feedback yet, automating a survey your future interviewees can fill out)

Standardizing your hiring process and systems helps you improve your recruiter cost ratio in two major ways. First, it’s easier for your team to ramp up when you have set processes that work for every job req. Second, standardized methods help you hire more equitably and control for hire quality—and they’re easier to troubleshoot than hiring pipelines that vary by department or role.

Faster hiring brings in more value (in terms of compensation of new hires), and quality hires stick around longer (meaning less time wasted on candidates who leave after a few months). Strong, scalable systems help you achieve both.

A data-driven recruiting tool like Gem can empower your team to make changes when things go wrong. If your recruiter cost ratio changes drastically, it’s time to look for culprits like:

Low retention rates: If your new hires leave after just a few months, that’s more work (and resources) your team will have to dedicate to the same position.

Recruiter capacity mismatches: A talent acquisition team that’s overloaded with job reqs is more likely to spend inefficiently—either because they’re forced to hurry the hiring process (decreasing candidate quality) or because they have to quickly pick up more team members and tools (without time to consider whether these investments are the right choice).

Low offer-acceptance rate: Taking a candidate all the way through your hiring process only to have them say no means a lot of time and resources wasted on hiring for certain roles.

Greg uses Gem to track all of these metrics and more. The Talent Compass dashboard tracks vital data like offer acceptance rate and time to hire. It also shows your pipeline health, so you can see when you’re headed for a potential bottleneck.

Our Pipeline Analytics feature gives you a complete view of your pipeline, so you can see if you’re using substantial resources on candidates who self-select out of your funnel. You can sort your pipeline data in multiple ways to determine where you’re burning valuable time or resources—whether it has to do with roles or recruiters.

Gem is also Greg’s go-to for tracking and planning his team’s workload. The Greenhouse integration makes it easy for him to see which hiring manager handled each interview and thus estimate the cost of his interviewers’ time. Greg uses historical data to make sure his team stays at or under capacity, thus circumventing the inefficiencies that often happen when companies try to rush delicate processes.

Everyone at your company wants your team to do its best work—because bad employees have a ripple effect. Greg gets buy-in to his efforts to improve Wheel's recruiting process by letting everyone see the costs and returns of his work.

When recruiting becomes a companywide effort, it’s easy to make the case that your team shouldn’t just be evaluated by the money it spends, but rather by what it manages to do with that money. Everyone knows how much value a good hire brings—and how much a bad hire can drag a team down. When leadership—and Finance—sees your team doing a good job, there will be a supporting argument for you to retain a decent budget. After all, leaders can see how your capabilities would decrease if you didn’t have the resources you needed.

Your employees’ experience with your work plus your recruiter cost ratio make a strong evidence- and data-backed argument for maintaining a healthy recruiting budget—even during slowdowns or economic downturns. Don’t wait to calculate your recruiter cost ratio. The quality of the hires you make tomorrow—and one year from tomorrow—may depend on it.

Gem helps teams hire efficiently, whether you’re looking for one new employee or one hundred. Contact us today to see how our talent CRM supports a healthy recruiter cost ratio—and talent acquisition team.

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