March 16, 2023
How to think about recruitment spend and ROI during a downturn
October 9, 2020
Note: This is excerpted from Gem’s newly-published Talent Leader’s Guide to Reporting. Check it out for additional recruiting metrics relevant to sourcers, recruiters, and hiring managers.
In recent years, recruiting analytics—along with robust reporting capabilities—have finally become available to talent acquisition teams, though they’ve been available to their counterparts in sales and marketing for years.
Those analytics have meant invaluable results for recruitment. Teams who are leveraging technology to track recruiting metrics and letting data guide their decisions are discovering where they’re underperforming, implementing process improvements, refining their efforts, making better-informed talent decisions, and proving their ROI. They’re connecting more effectively with talent and offering better candidate and hiring manager experiences. The outcome is better, more efficient hires.
But with great data comes great responsibility. According to a recent survey, only 12 percent of CEOs have faith in the metrics talent acquisition brings to the table. Our best guess about this data point is not that TA leaders are bringing unreliable numbers; it’s that they’re bringing uninteresting numbers as far as executives are concerned. As a talent leader, you’re swimming in your data and what it represents to you. But the people you report to care about very specific elements of that story.
Traditionally, talent acquisition teams have focused on tactical or “efficiency” metrics such as time to hire, cost per hire, or number of hires made over a given period. These recruiting metrics are useful insofar as they help you observe inefficiencies and opportunities to improve your hiring process; but they’re reactive rather than proactive or predictive—and they certainly don’t matter to your executives as much as they matter to the recruiters on your team.
Getting into executives’ heads and adopting their strategic mindset means translating data into dollars and prioritizing predictive analytics over historical metrics, results and outputs over process efficiency metrics, strategic impacts over functional or operational ones, and revenue over cost-cutting. Here’s what your executives are likely to want to see:
This is an easy metric to kick off your meeting with executives. How many recruiters are currently on the team? How many sourcers? How many are focusing on diversity sourcing, on executive search, and so on? Do those numbers align with the goals recruitment has right now? Will they be able to hit their targets for the next two quarters at this capacity?
This is a metric your C-levels should be updated on regularly, alongside a time-to-fill metric for those still-open roles. (Use historical data to forecast time to hire.)
Your team likely has quarterly hiring targets in place—without them, it’s hard to know if TA is tracking to support the org’s needs—and the longer a req stays open, the more likely you are to cripple business results in that area. In the report, show the total hires you made last month alongside how many open headcount there still are.
Especially when it comes to high-level roles, give execs a summary of where in process those roles are (“we have three onsites for the Marketing Ops role next week, one of which was a referral from our Head of Demand Gen, and one of which came directly from our diversity initiatives”), and highlight roadblocks you’re up against for that req.
C-levels will especially want to know this number when it comes to high-priority, revenue-generating roles. There’s a measurable dollar loss for each excess day that revenue-generating or revenue-impacting roles are vacant; so work with your CFO to put a dollar amount on that lost revenue. (The most basic method of calculating cost-per-vacancy is to divide your company’s revenue per employee—total revenue divided by number of employees—by the number of working days in the year. Revenue-generating roles such as sales and engineering will have higher costs per vacancy, as will executive roles.)
You might also focus on productivity loss here: what projects are delayed due to vacant roles? Can you put a price on that delay? Can you determine a lost productivity metric with your managers? Has there been a historical improvement in the number of excess vacancy days? Calculating these numbers helps demonstrate how recruiting impacts the bottom line. Arrive to your meeting with ideas for how to strengthen the hiring process for these roles.
Maybe you’ve seen an emphasis elsewhere on reporting top diversity hires into customer-facing and product-impact roles; but we think diversity hiring across the board needs to be reported to your C-levels. There’s no shortage of evidence out there that diverse teams are more productive, more innovative, more engaged, and drive more revenue.
CEOs have taken note of the business case for diversifying. They recognize its importance to the company brand and to your ability to attract and retain more underrepresented talent over time. If nothing else, the diversity of your workforce should reflect the diversity of your customer base—or of the customer base you want to have.
If necessary, remind your execs what your diversity strategy is, and hold yourself accountable to those numbers in every report. What does diversity look like at the top of the funnel? How might those top-of-funnel numbers impact the overall composition of your teams? Can you work with your CFO to calculate the value-add of increasing diversity in critical jobs?
Offer acceptance rate (OAR) measures the ratio of job offers that are accepted to the total number of offers extended. It’s the final metric in your recruiting funnel; and a low OAR can be indicative of anything from lackluster compensation or benefits, to poor company culture, to tediously lengthy recruitment processes, to recruiters’ failure to “sell” the company. Executives want to know if you’re finding roles difficult to fill, along with your sense of what might be keeping talent from saying “yes” to your offers. After all, offer acceptance rates also impact cost per hire, since declined offers mean going through the process again with the next-best candidate.
Track the details of each extended offer to see where there may be patterns or trends in what declined offers entail. Track acceptance over time to see where you’re improving. (Note: from a data-integrity perspective, make sure recruiters don’t wait until after an accept to enter offers-extended into your ATS. Otherwise your OAR will be artificially high.)
Rejection reasons are the other side of the OAR coin. Your team should be tracking the reasons candidates give for declining your offer, and your CEO should hear them. Again, look for trends and patterns. While low OARs are hardly desirable, the qualitative data you gather from them should give you plenty of fodder for improving either your hiring process or other aspects of your company (culture, for example) that need attention.
As a strategic function, talent acquisition has to prove it’s met its goals. This data point you don’t need to report regularly; but twice a year, update your C-levels on the percentage of goals that were met—or, in some cases, exceeded. Remind them specifically what your top 3-5 goals were. What conditions prevented you from meeting the targets you didn’t meet? What do these percentages suggest about what’s realistic for your next set of targets?
This is a number you can work with your CFO to arrive at. ROI is perhaps the most commonly-calculated metric for business functions, and recruiting should be no exception. For talent acquisition leaders, this means quantifying your positive business impact so you’re not just reporting on expenditures.
Use your cost-per-hire and new hire retention rate to show how you’ve reduced turnover costs. Show revenue growth by multiplying your org’s revenue-per-employee by 4x for each top performer you’ve hired. (Research has found that top performers produce 4x more output than the average employee.) Show quality-of-hire improvement—along with the revenue impact of your performance-improvement metric—in roles that are either measured in dollars or quantified with numbers, such as sales and customer service.
Show executives your recruiting cost ratio—the total recruiting costs arrived at by adding external costs (third-party agencies, job advertising, etc.), internal costs (recruitment software, hiring team salaries, employee referral bonuses, etc.), and total compensation of hires. Compare that number to the industry average. Compare your overall ROI to last year’s ROI, as well as to the ROI of other business functions. You might also offer an action plan to improve ROI in the near future.
Leave room in your executive report—and in your conversation—for something outside of these fixed metrics. The “hot” talent problems that are keeping your executives up at night may be different quarter-over-quarter; so pay attention to what’s on their agenda. The recruiting metrics above cover hiring speed, revenue, diversity, and the ROI of recruitment; but C-levels are also likely to care about innovation, internal mobility, leadership development, and more at different points in time. This last metric should speak to what’s top-of-mind for them in the moment.
There are metrics that other business units (finance, HR) will be keeping track of that relate to new hires; if you have access to that data, make use of it in your executive reports. For example, finance will have a revenue-per-employee ratio that, over time, can help you demonstrate the increasing revenue value your business is creating through strong hires. HR will have critical metrics like the failure rate of new hires and performance turnover, which may be a reflection of the predictive capacities of your hiring teams.
Of course, your CEO and C-Levels aren’t the only stakeholders in the game; you’ll also be sharing or looking at reports with sourcers, recruiters, and hiring managers. Check out our Talent Leader’s Guide to Reporting for the recruiting metrics each of these personas will care most about—to set realistic expectations, to know when to offer solutions, and ultimately, to do their jobs better.
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How to think about recruitment spend and ROI during a downturn
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