Amidst the growing consensus among hiring managers that recruiting departments should embrace a more data-driven approach for long-term business impact, the significance of accurate recruiting metrics has reached unprecedented levels. PwC reports that HR costs, constituting an average of 28% of a company's total operating expenses, underscore the financial stakes involved. In response, organizations are intensifying their expectations, urging recruiting departments to quantify metrics and showcase the return on investment. To offer a thorough guide on measuring, optimizing, and demonstrating the business value of recruiting processes, we have compiled this comprehensive resource for talent acquisition professionals.
Recruitment metrics serve as vital measurements offering insights into the efficacy and value of the recruiting process. These metrics encompass both time and financial aspects, shedding light on specific practices and conversion rates within the recruiting funnel. By identifying successful functions and areas of underperformance, these metrics play a crucial role in pinpointing necessary process improvements and justifying investments in particular recruiting functions.
The top 10 metrics frequently employed by talent acquisition professionals, as identified by Jibe, include source of hire, time to hire, applicants per hire, cost per hire, candidate experience, retention, offer acceptance per hire, quality of hire, vacancies vs. positions filled, and diversity.
Additionally, recruiting metrics encompass conversion rates throughout the recruiting funnel, with an average of approximately 1% of candidates ultimately being hired. Lever's data provides further insights into specific conversion rates, such as candidate to screening, screening to interview, interview to offer, offer acceptance, and overall candidate to hired conversion rates.
This guide zooms in on four key recruiting metrics: source of hire, time to fill, cost per hire, and quality of hire.
Source of hire is a critical recruiting metric that reveals the origins of new employees within an organization. According to Silkroad's data, the most prevalent sources of hire include job boards or aggregators (31%), employee referrals (22%), internal hires (11%), company career sites (11%), and agencies (10%).
Understanding the source of hire data offers valuable insights into cost reduction opportunities, effective allocation of marketing and advertising budgets, and informed decision-making regarding investments in recruiting programs and tools. By analyzing this metric, organizations can strategically optimize their recruitment efforts and enhance the overall efficiency of their talent acquisition strategies.
Time to fill is the number of days between when a job requisition is approved and the day an offer is accepted by the candidate.
Time to fill is a measure of how efficient your recruiting process is. SHRM’s latest survey finds the average time to fill is 41 days. But with a tighter talent market and increased hiring volume this year, recruiting teams are facing pressure to reduce their time to fill.
iCIMS breaks down the time spent on the hiring process as:
- 15% – Applied
- 23% – HR Screening
- 37% – Hiring Manager Review
- 23% – Interviewing
- 2% – Hired
This means 63% of the recruiting cycle is directly under your control to streamline or automate.
Time to fill may be the easiest recruiting metric to improve because there are so many recruiting software tools you can use to automate parts of your recruiting workflow.
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.
Here are 9 tips to reduce your time to fill.
Tip #1: Streamline Job Postings and Social Media Promotion with Automation
Utilize Applicant Tracking Systems (ATS) to automate job postings on various boards and social media platforms, reducing the time spent in the applied phase and improving the hiring process significantly.
Tip #2: Enhance Efficiency with AI-Powered Resume Screening
Leverage AI technology to automate the screening of resumes, cutting down the screening phase's duration and ensuring a more streamlined process. This method has proven to reduce time to fill by as much as 75%.
Tip #3: Rediscover Talent with Candidate Rediscovery
Optimize your existing database by employing candidate rediscovery tools that analyze job descriptions and match them with previous candidates, saving time compared to posting new job ads and attracting fresh candidates.
Tip #4: Expedite Initial Candidate Outreach through Automation
Utilize tools for automated email and text outreach, and enhance communication efficiency by incorporating analytics to track candidate engagement and interest levels.
Tip #5: Provide Comprehensive Candidate Information to Hiring Managers
Speed up decision-making in the hiring manager review stage by automating resume screening and candidate outreach, presenting a shortlist of well-qualified candidates with detailed information on their qualifications and interest levels.
Tip #6: Save Time with Automated Interview Scheduling
Integrate software that auto-schedules interviews with candidates, based on their performance in the resume screening stage, minimizing delays and making the interviewing process more efficient.
Tip #7: Embrace Online Interviews for Flexibility and Efficiency
Incorporate online interviewing tools that allow real-time or pre-recorded interviews, providing flexibility and assessing additional data points such as word choices and facial expressions to expedite decision-making.
Tip #8: Digitize Reference Checking for Speed and Convenience
Implement software for digitized reference checking, eliminating the need for time-consuming phone calls and allowing referees to provide information at their convenience.
Tip #9: Expedite Hiring with E-Signatures for Job Contracts
Utilize software that facilitates e-signatures for job contracts, minimizing delays in the hiring stage and ensuring a swift and efficient recruitment process.
Cost per hire serves as a crucial metric in assessing the efficiency and cost-effectiveness of your recruitment process. Obtaining data on cost per hire is vital for identifying areas that need improvement and for strategic planning of your recruiting budget. Here's an overview of how to calculate cost per hire to optimize your recruitment procedures.
Cost per Hire Formula:
The Society for Human Resource Management (SHRM) provides a formula for calculating cost per hire:
Cost per Hire=Total Number of Hires in a Given Time Frame/Total Internal Recruiting Costs + External Recruiting Costs
Internal Recruiting Costs:
Internal recruiting costs encompass various expenses related to the internal staff and organizational aspects of the recruitment function, including:
- Recruiter salaries
- Employee referral bonuses
- Interview costs (calculated as the number of hours multiplied by the hourly salary of the interviewer or hiring manager)
- Fixed costs, such as physical infrastructure (e.g., office rental)
External Recruiting Costs:
External recruiting costs pertain to expenses associated with external vendors or out-of-office costs. This includes:
- Agency fees
- Advertising costs (e.g., job boards)
- Technology costs (e.g., recruiting software)
- Career fair/recruiting event costs
External recruiting costs can also extend to candidate-related expenses such as travel costs, relocation costs, and signing bonuses.
Cost per Hire by Category:
To gain a deeper understanding and make relevant comparisons, you can calculate cost per hire metrics in various categories, such as:
- Job position
- Leadership level
- Source of hire
For instance, the cost per hire for software development roles may differ from that of finance roles due to market dynamics.
Cost per Hire Benchmarks:
Comparing your costs against benchmarks helps determine if your cost per hire is high, low, or average. Industry benchmarks include:
- $3,400: Cost per hire for an entry-level employee
- $4,129: SHRM's reported cost per hire
- 16% of annual salary: Cost per hire for a job paying $30,000 or less
- 20% of annual salary: Cost per hire for a job paying $75,000 or more
Recruiting channel source of hire benchmarks provide insights into costs associated with different platforms:
- $1,248: Major job board
- $803: Niche job site
- $513: Job aggregator
- $616: Social network
- $285: Glassdoor
By analyzing these metrics, you can refine your recruitment strategy, allocate resources more effectively, and optimize your overall hiring process.
Best Practices for Cost of Hire Optimization
Utilizing cost of hire data effectively is essential for optimizing your recruiting process and making informed decisions. Here are some best practices to consider:
Regularly Examine Cost per Hire:
- Calculate your cost per hire regularly to evaluate the impact of process improvements, technology implementations, or recruiting events.
- Recognize that an increase in costs may be justifiable, especially if it aligns with an increase in recruiting headcount to handle higher hiring volumes.
Analyze Costs by Department and Position:
- Compare cost per hire data across different departments and positions to identify areas for process improvement and potential cost reductions.
- For instance, scrutinize interviewing costs for leadership positions and explore possibilities to streamline the process without compromising quality.
Calculate Cost by Source of Hire:
- Understand the cost-effectiveness of different sources of hire by tracking this data, either manually or within your Applicant Tracking System (ATS).
- Evaluate the efficiency of each source to guide decisions on where to allocate resources for maximum impact.
Assess Costs in Context of Other Metrics:
- Examine cost per hire data in conjunction with other crucial recruiting metrics such as time to fill and quality of hire.
- Explore correlations between these metrics; for example, does a decrease in time to fill coincide with a reduction in cost per hire? How does quality of hire respond to changes in costs?
Use Cost per Hire Data for Strategic Planning:
- Leverage cost per hire as a key performance indicator in strategic planning and budgeting.
- Use this data to inform decisions on future investments in recruiting tools and technologies, as well as to justify increases in company headcount.
- Consider the long-term impact of cost per hire on overall organizational goals and adjust strategies accordingly.
By incorporating these best practices, organizations can gain valuable insights from their cost of hire data, leading to more effective recruitment strategies, improved resource allocation, and better alignment with overall business objectives.
Quality of hire is a critical metric for organizations, ensuring that the right people are selected in the recruiting process. Here's a comprehensive five-step guide on how to measure and enhance the quality of your candidates:
Step 1: Collect Quality of Hire Metrics
- Recognize that there is no one-size-fits-all metric for quality of hire; it depends on organizational priorities.
- Commonly measured aspects include:
- Retention: The duration new hires stay with the company.
- Time to fill: The time taken to fill a job posting.
- Hiring satisfaction: The contentment of hiring managers with the new hire.
- Additional metrics may include time-to-productivity, job performance, employee engagement, and cultural fit.
Step 2: Measure Quality of Hire for an Individual Employee
- Utilize the following formula, ensuring all measurements use the same scale (e.g., scores out of 10):
Quality of Hire=Job Performance + Time to Productivity + Employee Engagement + Cultural Fit/ 4
Step 3: Measure Average Quality of Hire for All New Employees
- Calculate the average quality of hire score for all new hires with the formula:
Average Quality of Hire=Number of New Hires/ Sum of Quality of Hire Scores for All New Hires
Step 4: Measure Quality of Hire for a Specific Recruiting Practice
- Assess the success of specific recruiting practices by comparing their quality of hire scores.
- For example, compare the quality of hire scores for employees hired through automated resume screening with those hired through manual screening.
Step 5: Measure Overall Quality of Hire for Your Recruiting Process
- To evaluate the overall success of your recruiting process, calculate the average quality of hire score for all new hires along with the retention rate.
- Determine retention rates, keeping in mind industry variations.
- Use the formula for retention: Retention Rate=(Number of New Hires at Start of Time PeriodNumber of New Hires Remaining Employed during Time Period)×100
- Finally, calculate the overall quality of hire for your recruiting process:
Overall Quality of Hire=Average Quality of Hire Score for All New Hires + Retention Rate/ 2
Ensure that all measurements are on the same scale, with both in this case out of 100.
By implementing these steps, organizations can systematically measure, analyze, and enhance the quality of their hires, contributing to long-term organizational success.
Establishing a connection between recruiting metrics and business outcomes is crucial for showcasing the financial and strategic value of recruiting departments. These outcomes extend to reduced costs, increased revenues, and other overarching company goals.
- Connect increased retention to business outcomes by calculating reduced turnover costs.
- Utilize the formula: Reduced Turnover Costs=(Cost per Hire×Number of New HiresRetention Rate) Reduced Turnover Costs=(Retention RateCost per Hire×Number of New Hires)
- For instance, if the cost per hire is $3,400, and the retention rate is 60%, reducing turnover by one percent for 500 employees hired annually can save $28,000.
- Demonstrate the monetary impact of enhanced retention, showcasing recruiting's strategic value through cost reduction and workforce stability.
- Recognize the disproportionate contribution of top performers to productivity, with some studies suggesting up to 4x the output of an average employee.
- Attach a monetary value to high-quality employees by calculating:
Additional Revenue per Top Performer= Revenue Generated per Employee×4
- Showcase the tangible revenue contribution of each top performer recruited and emphasize the strategic advantage gained by attracting top talent.
By quantifying the financial impact of recruiting actions, particularly in terms of cost reduction and revenue generation, recruiting departments can demonstrate their strategic value and contribute significantly to the overall success of the organization.
The evolving landscape of talent acquisition demands a data-driven approach, with recruiting departments urged to quantify metrics and demonstrate return on investment. PwC's insight into HR costs underlines the financial significance, emphasizing the need for accurate recruiting metrics. The top 10 metrics, including source of hire, time to hire, and quality of hire, play a crucial role in guiding process improvements. The focus on four key metrics—source of hire, time to fill, cost per hire, and quality of hire—provides a detailed framework for organizations to measure, optimize, and showcase the business value of their recruiting processes. As recruiting departments navigate this transformative era, strategic insights derived from accurate metrics become paramount for long-term success and organizational impact.