All too often historically, recruiting has been carried out without any sort of rigorous analysis. Even when metrics are applied to recruiting, traditional recruiting metrics miss the mark when it comes to measuring what really matters to impact return on investment (ROI).
Why traditional recruiting metrics don’t work
The two most common recruiting metrics traditionally are cost per hire (CPH) and at time to fill (TTF). Both metrics are intrinsically flawed.
Cost per hire tracks how expensive the recruiting process is per position, but fails to account for the differences in difficulty to fill across different types of positions, efficiency of the recruiting process, and quality of hire. “Marshaling the resources that are required to produce quality hires is almost always expensive” says Dr. Sullivan, CEO of DJS. “To put it bluntly, you get what you pay for.” Neglecting to account for the long-term costs of poor hiring decisions is a big mistake in developing a recruiting strategy. If you are filling positions cheaply but with low quality hires, your total costs may be much higher than if you had invested more per hire, but made better hires.
A poor hire is costly in five major ways.
1. Poor hires often require more time to manage.
2. Poor hires are often unproductive and thus produce less benefit for the company per salary dollar.
3. Poor hires may create a negative customer experience and cost the company in reputation and potentially in lost return business.
4. Poor hires may drag down employee morale and lead to increased turnover among good employees.
5. Poor hires may themselves either quit or be fired shortly after employment and thus necessitate renewed recruiting efforts for the same position and thereby effectively double the cost per hire.
Time to fill is an equally ineffective metric for strategic recruiting. By evaluating recruiters based on a score that solely considers speed, time to fill similarly neglects quality of hire. It may thus result in manipulation of the system by recruiters, who could choose to fill positions with active candidates who are faster and cheaper to hire, even if there may be passive candidates who are better suited to the company or the work.
Recruiting Metrics that Actually Work
Effective metrics are important for strategic recruiting, because the only way to effectively improve results is to understand what your results are. For that, you need to be able to measure your results.
According to a 2012 Qualigence Whitepaper, an efficiency ratio is a more effective metric than cost per hire. An efficiency ratio is calculated by dividing the total cost of hire, spent both internally and externally, by the compensation of the position recruited. This is more effective because it accounts for the greater cost of filling higher paying positions than lower paying positions. It also accounts for the associated differences between candidate supply for different levels of compensation, as well as somewhat for differences in candidate demand due to variations in market, position level, industry, and location.
Even with those improvements over cost of hire, however, an efficiency ratio does not account for quality of hire. According to a study by the Aberdeen Group, Quality of Hire is the most important recruiting metric to track. Unfortunately, it also “tends to be a frustratingly elusive metric,” says Ji-A Min, a research analyst at Ideal Candidate.
According to Shanil Kaderali, executive vice president of global talent solutions at Pierpoint, a quality of hire measurement should include how long it took the employee to become fully productive, how s/he ranks among peers, and whether or not s/he is a cultural fit. For a more comprehensive quality measurement, some companies also include an engagement score.
In addition to efficiency ratio and quality of hire, hiring managers should account for the damage incurred by overly long hiring processes. If the hiring process is slow, there are many ‘position vacancy days’ during which that position is unoccupied and necessary work isn’t getting done. “Excessive vacancy days are particularly damaging for revenue-generating and revenue-impact positions” says Dr. Sullivan.
The cost of using excessive hiring manager hours should also be included in a comprehensive analysis of a recruiting process. Hiring managers typically fulfill additional duties within an organization and every hour spent on recruiting efforts is an hour that can’t be spent on those other necessary tasks.
“Recruiting should survey hiring managers to develop an ideal number of hours that they need to commit as a target” says Dr. Sullivan. “They should also work with the CFO’s office to put a dollar amount on those excess manager hours used.” If a hiring manager is regularly spending too much time on hiring related tasks, they must identify the causes of the excess time required and develop a plan to resolve those issues.
Other recruiting metrics to consider include net new candidates, candidates sourced by channel, total number of job applications, qualified candidates recruited, candidates accepted by hiring manager, total number of offers, and total number of offers accepted.
Net new candidates measures how effective your recruiting strategy is at getting your company in front of candidates as a potential employer and at attracting those candidates with your employer brand. A low score for net new candidates suggests that either your company has poor or poorly targeted visibility or that your employer brand is unattractive.
Candidates sourced by channel, especially when considering paid versus free channels, helps recruiters and hiring managers make more informed decisions about where to spend time and money. As part of this measurement, consider which channels are producing the greatest number of qualified candidates. Investing resources more heavily on high return channels can improve ROI.
Total number of job applications, if it is significantly lower than number of net new candidates, can indicate a candidate-unfriendly application process. The number of candidates accepted by the hiring manager can identify problems with communication between recruiters and the hiring manager. If the number is low, either the hiring manager isn’t clearly communicating what s/he is looking for, the recruiters aren’t being selective enough with candidates, or the hiring manager’s expectations are unrealistic.
Total number of offers is important to track in order to understand whether your current system is effective at recruiting the type of candidates the hiring manager is looking for. Total number of offers accepted, if it is much lower than total number of offers, can suggest something off-putting about the application or interview process.
Recruiting metrics can be complicated, especially because approaching recruiting analytically is relatively new. Hiring blind, however, is a waste of opportunity and quite likely also a waste of money. By applying a more sales-like approach to the hiring process, you can optimize your recruiting ROI and save time and money.