From CAC to TAC – How to calculate your talent acquisition cost?

You're working in a SaaS company, so you are most likely familiar with LTV / CAC ratio.

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If not, here’s the short version of it:

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LTV = Life-time-value (of a customer)

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CAC = Customer Acquisition Cost

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The idea behind the ratio is that you can afford to spend more on acquiring new customers if they bring in a lot of money during their lifetime as a customer.

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We’re all about stealing stuff from other business functions to Talent Acquisition, and this is one worth stealing.

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Do you know your TAC (Talent Acquisition Cost)?

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Most companies don’t. It’s a crucial metric because it tells you how much it costs your company to attract the right talent to your company.

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Here’s how you calculate it. Take these numbers from the past 12 months:

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1. Wages of people participating in talent acquisition. Typically this includes:

• Recruiters
• Employer Branding Specialist
• Hiring Managers
• Team members participating in hiring
• Other people participating in hiring inside of your company

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2. Total paid media budget you have used for your employer branding & recruitment marketing.

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3. Cost of all the software you are using for your talent acquisition e.g .your Application-Tracking-System & LinkedIn Recruiter licenses.

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4. All the outside expenses you have used for recruitment e.g. outsourced agents/headhunters, outside agency for Employer branding.

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When you calculate these and add them to each other you get the total number of € that you have used for your Talent Acquisition in the last 12 months. Let’s take an example where you get the answer of 480 000€.

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Ps. Don’t move forward in reading before calculating that number!

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Next, it’s time to see what you are attracted to with that investment. Calculate the number of hires you have made in the past 12 months. Let’s take an example: you have hired a total of 42 people.

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Here’s the formula for calculating your TAC (Talent Acquisition Cost):

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Amount of money used for talent acquisition / amount of hires

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In this case, it would be:

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480 000€ / 42 = 11 428,6€

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This is how much on average, it costs you to recruit one person.

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Of course, there are some recruitments that take more money & some that take less than that, but it’s the average.

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Okay, so is that a good or bad number?

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This would be the same as asking whether some company's CAC is good or not. You can’t answer that question without looking at the other side of the equation.

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Let’s give an example from the Customer-Acquisition-Cost side.

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If it costs 5000€ to acquire a new customer, but they bring in 1 000 000€ in revenue most likely, it’s a good deal.

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If it costs 5000€ to acquire a new customer but they bring in 5000€ in revenue it’s a bad deal and it’s not scalable.

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So let’s check the other side: Life-time-value. I will cut some corners here to make it simple.

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There are a few ways for this, but the two main numbers I would check here:

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1. The average duration of the employment relationship

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2. Average profitability of an employee per month

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From these two, we can calculate the lifetime value of an employee in the big picture.

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The first one is relatively easy: Look at your data. What is the average amount of months that a person stays within your company. Typically you will find this number to be from 18 to 36 months on average.

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How should you calculate the profitability of an employee per month?

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Let’s simplify a bit in this formula:

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Your total profits / the amount of people / 12

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So e.g., your company is profiting 2 000 000€ a year.

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You have 150 employees.

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One employee is profiting an average of:

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2 000 000 / 150 / 12 = 1111€ / month.

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Yes, I know this is cutting corners, and all employees aren’t profitable, and it takes time to become profitable for the business, etc.

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Let’s use as an example that the average person stays 22 months in your company.

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In that case, the life-time-value would be 22 x 1111€ = 24 442€.

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Here are some interesting numbers based on those:

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Your LTV to TAC ratio would be:

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24 442€ / 11 428,6€ = 2,14

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Your TAC payback time would be:

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11 428,6€ / 1111€ = 10,3 months (In reality, more because you need to onboard people, and they are not profitable from the beginning).

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Still, some fun number games to play and see your numbers!

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