How to Determine Return on Investment in Executive Search

When planning executive recruitment, business leaders increasingly seek to measure the return on investment of hiring senior executives. The International Executive Search Federation (IESF) offers insights into this critical topic, outlining key factors such as cost per hire, time to fill, and quality of hire. A recent IESF report provides a comprehensive guide to assessing ROI in executive search, helping organizations make informed decisions about their hiring strategies.

January 31, 2025 – Increasingly, decision-makers planning recruitment outsourcing and budgeting for the upcoming year are asking how to measure the return on investment (ROI) of hiring a new senior leader. This becomes even more challenging and crucial when executive-level recruitment is involved, according to a new report from the International Executive Search Federation (IESF)’s Ewa Adamczyk, a partner at member firm NAJ International. The report offers five ways to calculate your ROI when using an executive search firm.

1. Definition of ROI.

“Recruitment ROI, specifically in executive search, refers to the financial assessment of the benefits of investing in the recruitment process for high-level executive positions,” the IESF report said. “It is a metric that demonstrates how much a company gains compared to the costs incurred, such as recruitment fees, the time required to fill the position, and the costs of integrating a newly hired leader into the organization.”

2. Factors Impacting ROI in Executive Recruitment.

Both the costs and the gains from hiring influence ROI. IESF offers three key elements that must be considered when calculating ROI include:

  • Cost per Hire: This includes direct costs such as the labor cost of the company’s own employee(s) assigned to carry out the recruitment, fees for recruitment agencies, and advertising, as well as indirect costs such as lost productivity during the vacancy, training costs, onboarding costs, and other relevant expenses, if applicable.

  • Time to Fill: The exact number of days needed from when a position becomes vacant, through the creation and posting of a new job opening, until an offer is made and accepted by the candidate, and finally, when the new employee starts working. In the case of lower-level positions, for simplicity, the endpoint for calculations is often considered to be the moment the candidate accepts the offer. Many companies adjust these data following their internal procedures and policies. A longer time to fill a position results in losses due to reduced productivity. Reducing this time through an efficient recruitment process improves ROI.
  • Quality of Hire: Quality of hire is a metric used to evaluate the effectiveness of a recruitment process by assessing new employees’ performance and contribution after being hired. It focuses on measuring how well a new hire fits within the organization and how they perform in their role.

3. Long-Term Benefits of Executive Search.

Hiring for executive positions has a long-term impact on the organization. IESF points to the following research which shows that successful recruitment for key roles:

  • Boosts Productivity: Leaders directly influence the performance of teams and the organization, which can translate into increased revenue.
  • Reduces Turnover Costs: A well-selected leader is less likely to leave the company, reducing the costs of subsequent recruitment processes and onboarding.
  • Strengthens Competitive Position: Effective leaders can drive innovation and strategic change, providing the company with a competitive advantage.

4. Additional ROI Indicators.

The International Executive Search Federation suggests considering intangible benefits in the executive search process, such as:

  • Enhanced employer branding.
  • Increased customer and employee satisfaction.
  • Strengthened client relationships through strategic decisions made by leaders.

Comparison of ROI: Executive Search Firms vs. Internal HR Department

A comparison of ROI in executive recruitment using an executive search agency versus an internal HR department involves several key aspects:

1. Time Required for the Recruitment Process.

Executive Search Firms: “Agencies have established processes for developing search strategies and reaching the suitable candidates, often those who are passive in the market,” the IESF report said. “They have experience in building trust with candidates, opening them up to new opportunities, and, most importantly, they specialize in recruiting for roles that are rarely activated within individual companies (such as CFO, CEO, CSO, CPO, CHRO, board members and more). This allows them to initiate and conduct recruitment faster, especially when reaching passive candidates. The time required is usually shorter than the process run by an internal HR department, which may be stretched thin by multiple responsibilities and unable to dedicate full attention to a single recruitment. This results in faster placement of the position and minimizes costs associated with the vacancy.”


The Most Vital Component of Any Search Process

In the world of executive search, most searches conclude with a finalist candidate accepting a search firm-mediated client offer that establishes the agreed upon financial terms, start date, and on-boarding initiative — important items to any new leader. However, a new report from BroadView Talent Partners explains that many are surprised to hear that a search firm’s engagement with both client and candidate doesn’t have to end with placement. In fact, BroadView Talent says that post-placement consultation and follow-up is perhaps the most important part of the firm’s search process.


Internal HR Department: Internal HR often has to create a recruitment strategy from scratch, which takes more time, according to the IESF report. “An HR recruiter must balance the recruitment process with other daily responsibilities, extending the time needed for each stage, from candidate selection to managing the process,” it said. “Additionally, lacking specialized knowledge in reaching passive candidates within a specific business area or market segment can significantly prolong the process.”

2. Recruitment Costs.

Executive Search Firms: The IESF report explained that fees for executive search services are typically higher than internal recruitment costs. Agencies may charge a percentage of the hired individual’s annual salary (often between 20 percent and 33 percent) as compensation for their services. However, this cost covers the entire process—from candidate sourcing and interviews to final selection and reference checks, and may even include assessment center costs.

Internal HR Department: “Internal recruitment may appear cheaper at first glance, as it avoids the high fees of an agency,” the report said. “However, indirect costs, such as advertising expenses, the time spent by a recruiter who must divide their attention between various tasks, and maintaining candidate engagement throughout a typically multi-stage process, along with the costs resulting from the extended vacancy period, can significantly increase the total recruitment costs.”

3. Candidate Quality.

Executive Search Firms: Search firms have broad access to global talent pools and often specialize in reaching leaders who are passive in the job market—those not actively seeking employment but who are ideal candidates for executive positions, the IESF report noted. Their extensive networks and industry expertise enable precise candidate selection, which can result in higher-quality leadership hires.

Related: A Look at the Trends Impacting Executive Search Today

Internal HR Department: “Internal HR, unless equipped with a specialized team, may have limited resources and networks, making it more difficult to reach top candidates and convince them to join the recruitment process,” the IESF report said. “They typically rely on traditional methods, such as job postings, which may not attract the best leaders in the market. Moreover, the limited experience of an internal HR department in conducting recruitment and reaching executive-level candidates can lead to hiring an unsuitable candidate, resulting in additional turnover costs.”

4. Confidentiality of the Process.

Executive Search Firms: Recruiting firms have experience handling confidential recruitment processes, which is crucial when hiring for senior positions, especially when the hiring involves changing the leader within an organization, the IESF report explained.

Internal HR Department: Internal recruitment often involves challenges in maintaining complete confidentiality, especially in larger organizations where employees may become aware of the ongoing process, the report noted. This can affect team morale or the trust of current leaders. Additionally, candidates are sensitive to this aspect of the process and may respond cautiously to inquiries from another employer.

5. Process Management and Employer Branding.

Executive Search Firms: Firms ensure complete professionalism and maintain a positive company image in the eyes of candidates. Each stage is managed according to the highest standards, which helps build the employer brand and attract top talent, the IESF report explained.

Internal HR Department: “Managing multiple process stages, including candidate outreach and coordinating interviews, can be more challenging for internal HR departments, especially when recruiters have other responsibilities,” the study said. “Neglecting any of these areas may result in candidates’ negative perceptions of the company, which can affect its reputation in the market.”

6. Guarantee on the Hired Candidate Offered by Executive Search Agencies.

Executive Search Firms: Search firms often offer guarantees on the hired candidates, which is an additional advantage when choosing this recruitment method, according to the IESF report. “This guarantee means that if the newly hired leader leaves or is dismissed within a specified period (usually six to 12 months), the agency commits to redoing the recruitment process at no additional cost or refunding part of the recruitment fee,” search consortium said. “With the guarantee, the company reduces the risk of potentially costly turnover in leadership positions.”

Internal HR Department: With internal department, they do not offer such guarantees, which means that if the hired candidate is unsuitable, the company has to bear the total cost of another recruitment process. This represents a greater financial risk, especially when hiring for senior positions, where a poor candidate choice can be exceptionally costly.

“Despite the higher upfront, direct costs, recruitment through an executive search agency results in lower overall expenses and faster position placement and reduces the risks associated with a failed hire due to the guarantee offered,” the IESF report said. “On the other hand, internal recruitment, though cheaper at the outset, typically involves longer time-to-hire, higher costs from lost productivity, and the lack of a guarantee, which could lead to additional costs in the future. The choice between an executive search firm and the internal HR department depends on the company’s priorities. Agencies offer faster, more efficient processes, particularly for challenging roles requiring discretion and precision. While agency costs are higher, the potential long-term benefits – such as better candidate fit and reduced turnover – may significantly outweigh the costs associated with internal recruitment.”

Founded in 2002, the International Executive Search Federation identifies talent and leadership from 50 offices and 22 countries. The IESF offers a fully customized, local approach to search projects, based on culture, regional economics, and the local candidate marketplace.

Related: A Look at Executive Search in 2025

Contributed by Scott A. Scanlon, Editor-in-Chief and Dale M. Zupsansky, Executive Editor  – Hunt Scanlon Media

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