The ROI of Headhunting: How Much Does It Cost and What Benefits Do You Get?

In today’s competitive business world, acquiring managerial and specialized talent is crucial for success. However, when a recruitment process is carried out without the necessary experience, 46% of new hires fail within the first 18 months.

This is why many companies consider the always effective option of working with a headhunting consultancy. This is where many ask a valid question: what is the return on investment (ROI) of headhunting?

At Talent2Win, we are a headhunting company that can give you all the keys to understanding how ROI should work when searching for executive talent. In the following article, we analyze the costs and benefits associated with executive searches, focusing on reducing hiring time, candidate quality, and business impact.

What does the cost of Headhunting entail? (Executive Recruitment Costs)

Understanding the initial investment is essential to calculate the ROI of headhunting. Costs are generally divided into:

• Headhunting firm fees:

These are usually based on a percentage of the hired candidate’s gross annual salary (between 20% and 35% is a common range). This is the main direct cost.

• Indirect costs:

These include the time invested by the internal team in meetings with the firm, interview preparation, and process management. Although less tangible, they represent an important factor.

The risk of a bad hire

Hiring the wrong person and then having to replace them can be a big problem. It is estimated that the cost of replacing a worker can vary between 1 and 2 times their annual salary. For example, if a professional in a company earns $50,000 a year, the cost of replacing them could range between $50,000 and $100,000. For executive positions, this cost multiplies considerably.

Why so much? The reason is that, initially, we must consider the costs of candidate sourcing, final shortlist selection, onboarding, and the subsequent severance pay of the outgoing professional, if the situation warrants it.

To this we then add indirect costs such as decreased productivity in the organization, the loss of business opportunities, projects, clients, or contracts.

Additionally, we cannot overlook the impact that a bad hire can have on the work environment, potential conflicts, which can even lead to an increase in turnover.

All these expenses and consequences together can cause a bad selection decision to affect, to some degree, both the budget and the performance of the company. Therefore, although the initial investment in headhunting may seem high, the benefits of a good executive search process can more than compensate for it.

Companies like Apple, Google, and Amazon frequently use headhunting services to fill key positions. Although they do not publish exact ROI figures, their sustained success and growth suggest that the investment in managerial talent through this method generates a positive return.

Quantifiable Benefits of Headhunting 

Headhunting offers benefits that directly impact ROI:

1. Reduced hiring time:

Specialized firms have access to a wide network of contacts and efficient processes, which significantly reduces the time to fill a vacancy. A LinkedIn study reveals that the average time to fill an executive position is 6 to 9 months with traditional methods, while headhunting can reduce it by half.

2. Higher candidate quality:

Headhunting firms conduct a thorough search and rigorous evaluation. Every executive search firm integrates a series of tests that better assess each candidate’s skills and identify the one that will match the organization.

This guarantees the presentation of highly qualified candidates with the right profile for the company culture. This translates into better performance and greater tenure in the position.

3. Lower turnover

By hiring more suitable candidates, staff turnover is reduced, which in turn decreases the costs associated with termination and new hiring.

4. Positive impact on the business

Hiring a high-level executive with the right skills and experience can have a significant impact on business performance, driving growth, innovation, and profitability.

How to calculate Return on Investment? (Headhunting ROI)

To calculate the ROI of headhunting, the following formula is used:

ROI = (Benefit obtained – Investment cost) / Investment cost

Where:

• Benefit obtained: This is the most difficult aspect to quantify, but it can be estimated by considering the increase in revenue, the reduction in operating costs, the improvement in productivity, or the strategic value that the new executive brings.
• Investment cost: This includes the fees of the headhunting firm and the indirect costs.

Example of how to calculate ROI in Headhunting:

A company hires a headhunting firm for $50,000 to find a new Sales Director. Thanks to this new director, sales increase by $500,000 in the first year.

ROI = ($500,000 – $50,000) / $50,000 = 9, or 900%.

This means that for every dollar invested in headhunting, the company obtained a return of $9.

Let’s recap!

While headhunting involves a significant initial investment, the long-term benefits, such as reduced hiring time, improved candidate quality, and positive impact on the business, can generate a substantial ROI.

To accurately calculate ROI, it is essential to define clear metrics and track the performance of the hired executive. In a competitive market, headhunting is presented as a strategic investment to secure the talent that drives the organization’s growth and success.

Talent2Win offers borderless talent consulting solutions tailored to your company. If you would like to learn about our Executive Search, Talent Acquisition or RPO services, please do not hesitate to contact us.