ROI (“Return on Investment”). We just gotta get us some ‘cuz it feels so good. It’s become the drug we believe is going to solve all our business problems – so when we need a cash injection to fuel our newly burgeoning Social Recruiting programs and initiatives, we’ve been taught to think that all we need is a fancy excel spreadsheet that shows a black number under the final column instead of a red one…
Because ultimately, that’s what ROI is – a black number instead of a red one, right? This is that part of the post where I point to Wesley Snipes and he states, without hesitation, “Always bet on black.” Okay, not really.
The issue with trying to sell Social Recruiting (and most non-campaign based Social Media initiatives, for that matter) is that ROI is utterly misunderstood. Not only is it misunderstood, it’s overly relied upon. In reality, ROI couldn’t be a simpler calculation because all we’re solving for is the “What” (i.e. “What return did we get from our investment?”, or better, “What return are we expecting to get back from this investment?”):
ROI = (‘Benefit’ – ‘Cost’) / ‘Cost’
You sell $5 of Apples. Your total costs were $1 to buy, set up, and sell the Apples. Your ROI = ($5 – $1)/1, or 4. Your return is 4x, or 400%. Simple, right? You don’t need business school to pick that one up quickly.
However, when it comes to Social Media and Social Recruiting, I too often hear people using different calculations. Yep, calculations with no basis that make zero sense. Can you monetize an eyeball or calculate the value of each online application? Sure you can, but that’s not ROI — after all, ROI couldn’t be any simpler and we can’t recreate the calculation because it’s already part of the Finance decision science (something we lack in the HR world.)
And therein lies the problem – ROI stinks because it is, in fact, too simple. It’s a weak calculation that’s better left for slick Sales Reps looking for a quick signature, Vendors who think we’re dumber than we really are, and business noobies who earned an “A” in Corporate Finance by gaming spreadsheets that look nothing like the real world we work in.
Here’s why ROI stinks: It doesn’t account for time. Yeah, that little Gorilla in the room that never seems to want to go away. That same return of 4x we mentioned above wouldn’t be so attractive if it took 2 years to get it. Compared to other investments, a 4x return would be largely inferior to a 1.5x return that we could get back in 3 months instead of waiting the whole 2 years. It’s all relative, and relativity is a factor not included in ROI calculations.
Here’s another reason ROI stinks and is not adequate when evaluating Social Recruiting investments: It doesn’t account for risk. How sure are you that your investment will return what you expect it will? Depending on the size and nature of what you’re evaluating, risk can be a pretty big deal, to say the least.
And if you need one more reason to top off the cocktail, ROI doesn’t account for the Cost-of-Capital. In other words, if you’re borrowing money (a combination of stock and debt), what is that money costing you (i.e. WACC or weighted average cost of capital)? Given that answer, how much will this investment really cost?
So, when it comes to selling Social Recruiting plans to the upper brass, be wary of ROI and instead opt for a Balanced Scorecard that works for you in your own unique environment. Perhaps your own quadrants could include a Financial one, a Brand Management one (i.e. are we becoming more of an Employer-of-Choice?), a Quality-of-Hire one, and a Hiring Manager Satisfaction or Onboarding Improvement one.
Ultimately, Social Recruiting initiatives are risky because they’re not wind-up toys. We can’t just put them in place like a defensive moat that takes care of itself with auto-responders and rejection text messages. Results are accumulative and ongoing, and you can only automate so far before you seem like a skeleton shop to real Candidates looking for real jobs at your firm. Social Recruiting takes time and effort, expended in real-time (often with other human beings like ourselves), to make them work. Yep, real man-hours equals real costs. And therein lies the beauty – the benefits of capitalizing on real-time opportunities, whether a Candidate conversation or closing a last-second sale, are endless… but they’re not free and will certainly take more than a quarter year to start generating meaningful returns.
Josh Letourneau is the owner of Knight & Bishop, an Executive Search and Human Capital Intelligence firm, with an emerging focus on Social Network Analysis (SNA). Nope, not like MySpace, but more like who is connected to whom in organizations and how does that impact their influence on decision making and P.O.V.s. And you can learn more about all of this on his new blog .