Blog Post

How To Link Recruiting Metrics To Business Outcomes

Ji-A Min

Data Scientist at Ideal

According to LinkedIn's 2017 Global Recruiting Trends Report, "quality of hire" is the top recruiting metric that hiring managers care about—and for good reason. Employees are your most valuable resource, and with 40 percent of today's Fortune 500 companies predicted to go out of business over the next 10 years, hiring the right people is crucial for your survival.

Quality of hire is also arguably the best metric to demonstrate the effectiveness of the recruiting department and its value as a strategic business function. And, on a more basic level, people want to work with great people. As you help grow a company by recruiting talented individuals, you enjoy the satisfaction of a job well done.

The importance of demonstrating quality of hire is nothing new, but how do you actually measure this metric? The seemingly elusive KPI is actually easy to calculate if you have the right strategy, technology and data-minded approach.

Here are three ways to measure quality of hire and link it to your business outcomes.

1) New Hire Retention

For high-volume hiring, increasing new hire retention is the name of the game when it comes to determining quality of hire.

The Bureau of Labor Statistics reports that turnover for high-volume positions, such as retail, is approximately 60 percent annually (i.e., a 40 percent retention rate). This type of high turnover has huge monetary costs. Using Wal-mart as an example, the cost of replacing 60 percent of their 500,000 entry-level employees would exceed $1 billion.

The formula for calculating new hire retention is:

Number of new hires who remained employed for the measurement period / Number of new hires at start of measurement period x 100

Increasing retention is related to business outcomes for one simple reason: reducing costs. Industry data indicates that the average cost to replace an entry-level employee is $3,400 and this cost increases as the employee's income increases. For example, if your annual retention rate is 50 percent, and you hire 1,000 employees a year, you can reduce costs associated with turnover by $17,000 for every one percent increase in retention.

HR has historically been shunned from a seat at the table due to its perception as an administrative cost center. By showing the monetary value of your contributions through higher retention, you can get the attention of executives and demonstrate the positive effects of a more stable workforce.

2) Time to Fill

LinkedIn reports "time to fill" is the second most important quality of hire metric for hiring managers. Time to fill is the number of days it takes from when a job is posted to when an offer is accepted.

A survey by the Society for Human Resource Management (SHRM) found the average time to fill is 42 days. This number is only expected to go up as unemployment rates decrease and the labor market becomes even tighter.

According to SHRM's data, the average cost per hire is $4,129. That means for every day you can decrease time to fill for one role, you can reduce cost per hire by $98 on average.

Time to fill may be the easiest recruiting metric to improve because there are so many recruiting software tools you can use to automate your job postings, resume screening, candidate outreach, interview scheduling and more. Reducing your time to fill has the added benefit of creating a competitive recruiting advantage if you can reach out and make offers to candidates faster than your competitors.

3) Hiring Satisfaction

A survey by ERE found that hiring managers rate the average performance of recruiting teams as a C+, so there's a lot of room for improvement here.

The satisfaction of hiring managers can be measured with a simple one-item measure similar to a net promoter score (e.g., how satisfied are you with the new hire on a scale from 0-10) or a longer survey that asks about the new hire's time to productivity, performance or other metrics you're interested in.

Research has found that top performers contribute disproportionately to a company's productivity: the top 5 percent of employees are responsible for 26 percent of a company's output. That means for every new hire a hiring manager gives top satisfaction ratings, you can increase the company's productivity by up to 4x more than if an average employee had gotten hired.

If you're able to calculate revenue per employee (the total corporate revenue divided by the number of employees), you'll be able to attach a number value to each high quality employee you've hired. Not only does this number demonstrate the additional revenue you've contributed to your company's bottom line, but it also proves how you can improve your company's competitive position by hiring top talent.

Today's data-driven workplace means the pressure to quantify ROI in HR is growing. Linking quality of hire metrics to business outcomes, like costs and revenue, is central for recruiting departments to continue demonstrating their value and strategic acumen.

Photo: Creative Commons

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