Measuring the Effectiveness of your Hiring
Recruitment is considered to be one of the most critical activities in an organisation. The ability to hire the best staff quickly is vital capability for organisation’s wanting to improve their performance. But the success or otherwise of achieving this is not often measured.
Recruitment teams will gather time to hire, cost per hire and resume/cv ratio data. They know where successful candidates come from. Some can provide retention information.
However, recruitment teams do not measure how effectively they have contributed to business performance in proportion to the amount they have invested.
Quality of Hire encompasses both the quality of the candidates sourced and hired, together with the quality of the hiring process. Return on Hire is a way of reporting on an organisation’s Quality of Hire in a way that will be easily understood by senior executives.
Return on Hiring – Why Organisations Should Use It
The concept of RoH gives organisations the opportunity to measure the effectiveness of their recruitment operations by comparing:
- the investment made in recruitment, with
- the contribution of the staff recruited
By getting an understanding of its RoH, an organisation can start to ask itself key questions and reach sophisticated answers about key strategic and operational issues to do with the way it is recruiting.
- Does it make sense to change the way in which candidates are sourced e.g. reduce agency usage in favour of direct recruitment?
- Should psychometric testing be employed as a method to assess candidates?
- Should we employ a full-time resourcer (or resourcing team) to replace the current distributed approach we employ to recruitment?
Traditionally business cases that address the above have been constructed using basic analysis tools such as SWOT, together with some simple cost-benefit analysis.
This often leads to a business case that is not rigorous or compelling enough to persuade key recruitment stakeholders many of which, let’s face it, are not easily convinced of change.
RoH is a method that can present both sides of a complex argument, and reach a conclusion in a way that means that management can make a rational judgement based on the option that’s best for the organisation.
RoH also sets a baseline measurement that can be used to measure the effect of change.
How do we define Return on Hiring?
RoH is defined in a similar way to the well-used business measure Return on Investment or RoI. It is the percentage return your organisation has made over a period of time as the result of investing in recruitment. This may be over a specified period or correspond to the benefit accrued in total for staff recruited (i.e. during the lifetime of their employment).
The core RoH calculation is relatively simple:
% RoH = (recruitment beneficial contribution / recruitment costs) x 100
How to Measure Return on Hiring
Measuring recruitment costs for most organisations is relatively straightforward. However although simple in concept, Return on Hiring can be difficult to measure without the ability to track candidate’s performance post-hire.
Most recruitment software measure only basic transactional pre-hire metrics. Talenytics (www.talenytics.com), the only Quality of Hire platform, measures post-hire candidate performance. This data can be used to assess the beneficial contribution of successful hires during their first twelve months and therefore easily allow organisations to calculate their Return on Hiring.
Hiring Payback Period
Another way of looking at RoH is to calculate how many months it will take before the benefits of recruitment match the costs and the recruitment pays for itself. This is called the Recruitment Payback Period:
Recruitment Payback Period (RPP) = recruitment costs / monthly beneficial contribution
RPP is a powerful measure. If a case for recruitment change can be developed that shows a radical reduction in an organisation’s RPP then management will be that much more encouraged to make the recruitment investment.
RPP is particularly appropriate for organisational units where employee contribution is relatively easy to identify and investment is required to reduce retention issues, for instance, call centres.
Return on Hiring – In Conclusion
If you are looking to improve recruitment in your organisation but need to develop a rigorous benefits case then Return on Hiring and Recruitment Payback Period are essential metrics.
Traditional recruitment software does not measure the contribution of new employee’s having been recruited. This is why the unique post-hire measurements of Talenytics are so valuable as they make possible the accurate and consistent reporting of Return on Hiring and Recruitment Payback Period.