These days, you can apply advanced metrics to just about everything — from baseball to financial statements. Why not HR, too? Many elements of managing people are quite quantifiable.
Tracking the results of various ratios and formulas can keep an organization informed of just how well it’s doing at hiring effectively, developing productive employees and limiting turnover. Using the typical “life cycle” of an employee, let’s look at some examples of how to get number crunchy with HR metrics.
An effective hiring process will bring in new talent efficiently and cost-effectively. Two common metrics for assessing yours are:
Average time to fill. Rushing to hire can lead to mistakes; then again, a sluggish process can leave the organization perpetually understaffed. This metric is usually calculated by:
Amount of time to fill all roles ÷ total number of openings filled
Another way of thinking of “amount of time to fill all roles” is the total days all positions were open. A long duration until new employees are brought on board could signal that the application or interviewing process is too long or that the candidate qualifications are subpar. It also could reflect the need to improve your employer brand.
Cost per hire. This metric shows what you’re paying to recruit and onboard each new employee. A commonly used formula is:
Recruiting/staffing costs ÷ number of new hires
To calculate it, identify as many specific costs as possible — including your recruiting costs (help wanted ads, recruiter services), the cost of any applicant tracking software you may use, managers’ and employees’ time interviewing candidates, and your onboarding and training costs.
You’ve probably heard the old cliché that it costs more to hire a new employee than to retain an existing one. Well, it’s generally true, but you’ll never know for sure unless you calculate cost per hire. And if the cost of your hiring process is consistently overbudget, look for ways to cut costs.
It’s one thing to get the right people in the right jobs; it’s another to get them contributing at the level you’re seeking. Here are a couple of metrics that can help you measure just that:
Average time to productivity. This metric tells you the average number of days it takes for a new hire to meet a satisfactory productivity level. It’s usually calculated by:
Total days to minimum productivity level ÷
number of positions filled during measured period
The “measured period” is typically six months or a year, but could be any time frame. You’ll also need to quantify productivity goals — for example, we want this salesperson closing X number of deals while handling Y number of accounts. By calculating the metric, you’ll open a window on not only your recruiting and onboarding efficacy, but also how quickly you can ramp up production as new hires are added to the mix.
Revenue per employee. If you want an HR metric that gives you dollars and cents, revenue per employee is the way to go. It’s particularly important for businesses looking to turn a profit, as any worker should generally bring in enough revenue to rationalize his or her paycheck.
To calculate revenue per employee, you’ll need to check your financial records to see how much revenue your organization brought in during a defined time frame, such as one month. Then you divide that dollar figure by the total number of employees you have. In other words:
Total revenue ÷ total number of employees
Acceptable amounts of revenue per employee vary widely depending on the industry in question, the level of the position and many other factors. But this is a good thing to track to stay cognizant of both productivity and cash flow.
Inevitably, some employees will depart from your organization. The rate at which these departures occur, however, has a huge impact on your success. A couple of ways to keep track of this are:
New hire fail rate. This metric indicates how many employees leave your organization relatively soon after their start dates. Commonly used definitions of “relatively soon” include within 90 days of completing a training program or before their first performance review. The metric is typically calculated as:
Number of new hires who quit or are fired ÷ total new hires in that time frame
A high new hire fail rate is an important red flag. For instance, if 15% of your new hires are fired within 30 days and another 15% of them quit, that’s a lot of fresh talent to lose so quickly. You may be rushing to hire or simply not onboarding new employees properly.
Turnover. A good indicator of a positive organizational culture is low turnover. Conversely, a constant churning of employees in and out doesn’t bode well for productivity or a good reputation in the labor marketplace. Turnover percentage is typically calculated as:
Number of terminations (voluntary/involuntary) for a specified period ÷
average headcount × 100
If your organization is large enough, you can focus this metric on certain segments of your workforce, such as upper management or an age group (Millennials, for example). High turnover at the management level can leave you bereft of effective leadership, and an inability to hang on to younger employees could mean future staffing shortages.
Using the data
A common and fair question about HR metrics is: What’s a good number? You might understandably wonder what’s too high or too low. The right answer will depend on various factors, such as your industry, the size of your organization and how long you’ve been operational.
You may be able to benchmark your chosen metrics against other similar organizations if you can locate applicable data. Sometimes industry associations and HR consultancies will maintain this information or be able to direct you to it. Another sensible approach is to track your metrics over long periods, so you can see, historically, whether your organization is trending up or down in the various categories.
Doing your best work
The metrics we’ve described here are just a few examples of many, many possibilities. Performance Dimensions Group has extensive experience working with organizations like yours to identify the measurements and assessment tools that will enable you and your employees to do your best work. Contact us here.