Why Better Quality of Hire Beats Time and Cost to Hire
Making your recruiting as data driven as possible is key; here are some metrics to get you started.
The impact of hiring great people on
all levels makes the whole difference. One rule of thumb is that the 20% best on
any level delivers more than 150% better result than average. That is why investing
more time and budget in activating better candidates always will have a
positive ROI. Simply because the chance of hiring among the 20% is higher with
Analytics show that higher quality
of hire (almost) always beats the value of reducing time to hire or cost to
hire on critical roles. But it is hard to value and analyze. So how invest
smart in recruiting? The concept of Return on Investment (ROI), or the ratio
between the amount of return on investment relative to its cost is known to
most. However, the metrics to calculating the actual ROI on your recruitment
efforts may not be as well established. A hire who performs poorly and leaves
quickly cannot be considered a good ROI, no matter how quick or cheap the
hiring process was.
It is important to balance all parts
of the recruitment investment and optimize your recruiting metrics. Tracking
the right metrics can make or break your hiring strategy, and your budget. Having
focus on the right HR & hiring metrics is a prerequisite for all HR leaders
wanting strategic impact and say. Making your recruiting as data driven as
possible is key, and here are some metrics to get you started:
Cost to Hire = Total Recruitment Costs
The easy one. The total cost up until
the point of hire is probably the easiest measure to assess. Covering the
initial upfront internal and external cost of getting a new employee to sign
your contract. It should include all internal costs and hours spent on
recruiting and onboarding, as well as the total cost of using external
recruiting services, SoMe and Job-boards.
Time to Hire = Number of Days to Hire
This is the number of days it takes
for a candidate to proceed from applying or being contacted for an open
position to accepting a position with your company.
Quality of hire = The value of hiring good or bad
Do the new hire meet your hiring criteria, exceed them, or not even come close? Use existing metrics from your existing employees to put a monetary value on your new hire. Decide if increasing recruitment spend to attract a better-quality hire with a higher level of experience will increase your ROIs. Your will see it probably will.
Cost of no hires and bad hires = Cost of not hiring or not firing
The cost of dealing with an open position, or not firing a low performance employee, is a complex metric. Still it us a critical metric to dig into. As a rule-of-thumb the average cost for an open position or a bad hire for a production position is 40% of compensation, for sales positions the cost is 150% of compensation and for management and executive positions the cost is 400% or more of compensation. The easiest way to calculate this metric is therefore to find the value or value created of the hired employee and subtract the total recruitment cost. These metrics show the impact on focusing on the quality of hire – or quality of candidates.
Cost of not hiring best in class
The cost of not hiring best in class is an even more complex metric to assess, but just as critical to calculate. Experts say that the additional costs of not hiring among the 20% best in market is losing an additional 150% of average productivity. The very best among the 20% best will by far exceed this figure too. To calculate this metric you will therefore need to take the cost of no hire or bad hire and multiply with a 150% additional average productivity.
Quality of hire as a metric for ROI
Finding the role specific metrics and optimizing recruiting ROIs can seem like a lot of work. Still ensuring the best recruiting ROI for your company is cheaper than continuing to hire without balancing the total investment. Start finding some roles and analyze direct annual and monthly costs based on the metrics above. Create metrics and KPIs for critical roles in your company to keep track of ROIs for actions to maximize quality of candidates.
Get the strategic impact you deserve with data driven recruiting and better quality of hire.