Business

Hiring ROI Calculator

Is this hire worth it? Calculate break-even, 1-year and 3-year ROI, and the expected value accounting for bad hire probability.

Fully-Loaded Annual Cost ($) Total employer cost including salary, taxes, and benefits

Expected Annual Value Created ($) Revenue generated, cost savings, or output value once fully productive

Time to Full Productivity (months) Average: 1–3 mo for individual contributors, 3–6 mo for managers

Productivity During Ramp (%) % of full output during ramp period (50% is typical)

Bad Hire Probability (%) Industry studies: ~20–40% of hires don't work out within 18 months

Cost of a Bad Hire ($) SHRM estimates 50–200% of annual salary in rehiring, lost productivity & morale costs

Contractor Daily Rate ($/day, optional) For contractor vs FTE comparison. Leave 0 to skip.

Days of Contractor Work Needed/Year

Break-Even (months)

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1-Year ROI

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3-Year ROI

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Expected Value (risk-adjusted)

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FTE vs Contractor Savings/yr

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How to Calculate Hiring ROI

Every hire is an investment. Like any investment, you need to know the expected return, the time to break even, and the downside risk. The formula is straightforward — the challenge is honestly estimating the value contribution.

Monthly Value (ramp) = Annual Contribution ÷ 12 × Ramp Productivity %
Monthly Value (full) = Annual Contribution ÷ 12
Break-Even = Month where Cumulative Net Value ≥ 0
ROI = (Total Value − Total Cost) ÷ Total Cost × 100%
Expected Value = ROI × (1 − Bad Hire %) − Bad Hire Cost × Bad Hire %

The Hidden Cost of Bad Hires

The Society for Human Resource Management (SHRM) estimates a bad hire costs 50–200% of that employee's annual salary. The U.S. Department of Labor estimates the cost at 30% of annual earnings. This includes: severance, lost productivity during employment, rehiring costs, team morale impact, and manager time lost. A 20% bad hire probability on a $120K cost hire = $12,000–$24,000 in expected bad hire costs that must be factored into your ROI.

How do I calculate ROI on a new hire?

ROI = (Value Created − Total Cost) ÷ Total Cost. The tricky part is estimating value created. For sales roles, use pipeline generated or closed revenue minus their quota. For engineers, estimate story points or features shipped vs. contractor cost alternative. For operations, use cost savings or hours freed up. A good rule of thumb: a hire should generate 3× their fully-loaded cost in measurable value within 12–18 months to justify the risk over contractors.

When should I hire full-time vs use contractors?

Hire full-time when: (1) the work is ongoing and requires institutional knowledge, (2) you need 200+ days/year of that skill, (3) the role requires cultural alignment and team management. Use contractors when: (1) the need is project-based or seasonal, (2) you need rare specialized skills below 100 days/year, (3) you're pre-product-market-fit and need to stay lean. The crossover point is typically when contractor cost exceeds 1.4× the equivalent FTE salary — at that point, hiring is cheaper long-term.