Get An 880% ROI On Your Hiring Spend

How do you measure the value you get from pre-employment testing?  Many firms are slow to adopt testing, and one reason is the difficulty of quantifying and understanding the benefits – it’s always been hard to measure. 

A recent article by Dr Steve Blinkhorn unpicks this, and allows us to focus more on the ROI from testing.  In the article Dr Blinkhorn considers the elements that we need to measure: 

1. What is the starting salary of the position we’re hiring for? (the higher the salary the more likely it is that the benefit of testing will be high) 
   
   
2. How variable is the applicant pool in terms of fit to the job description? (if applicants are more variable then choosing correctly is more important) 
   
   
3. How valid is the test? (the more likely the test is to correctly identify the attributes of a candidate the more useful it is) 
   
   
4. How expensive is the test? (what is your investment) 
   
   
5. How many tests do you administer vs the number of successful offers you make? (if you generally test a lot of candidates before making one offer the cost of testing will be higher than if you make an offer to most candidates you test) 
   
   

Our experience in accounting firms tells us that variability of applicants is quite high.  The shortage of applicants means the Testing : Offer Ratio is usually low - more so for senior positions, less so for bookkeepers and entry level roles.  Other studies show the correlation between well built tests and performance in the role is around 0.6. 

So let’s consider a hypothetical example of a Senior Tax Associate role.  Starting salary $90,000.  You interview 2 viable candidates and test them with both a technical knowledge test and a personality profile – costing $1,100.  Even with similar resumes the variability of a candidate with 3 years tax experience can easily be 25% (consider in the context of the net revenue an employee can produce – including support time from managers).  You make an offer to one candidate.  Based on the formula Dr Blinkhorn uses the value of the testing will be $10,800, less the cost of the testing at $1,100, for a net benefit of $9,700.  An 880% return on the investment.  [0.6 x 0.8 x 0.25 x $90,000 = $10,800] 

And this makes sense – it’s not hard to imagine that choosing the best candidate can save significant ‘bad hire’ costs.  Of course sometimes the ROI will be less (if candidates are very similar) or more (if they are more diverse).  But even with similar candidates the testing will help you assess how far through the development journey they are, and so make on-boarding that much less painful. 

Dr Blinkhorn notes that “…in ROI terms a cognitive test is probably the best investment you can make to improve productivity in your workforce for cognitively demanding jobs, with recurring returns upwards of 5,000% p.a. per recruit….even when candidates are preselected on academic achievement.” 

Source Dr Steve Blinkhorn

Happy hiring! 

Giles Pearson  |  After 18 years as a partner with a large public accounting firm, Giles founded Accountests to help those recruiting accountants make better hiring decisions

Accountests  |  Accountests deliver the world’s only online suite of annually updated and country-specific technical skills, ability and personality tests designed by and for accountants and bookkeepers.