The metrics that matter (some of them at least)
When you escape data-overload you see clearly 2 truths, (1) the hiring process is probably the most wasteful of human energy, and (2) success in hiring or staffing is down to a few simple key metrics
Maximum effort - minimal return
Staffing is an amazing industry filled with people who do great things for the world. Many have built successful businesses providing great service to candidates and clients - and are deeply passionate about doing so.
What is often missed is that a $100 million staffing firm is still relatively small in terms of the number of internal people, managing many processes and thousands of relationships on very thin margins.
As a result, the skills, tools or strategic time is not always available to leaders to understand what really drives the business forward. This is especially true in current times as the pace of change accelerates.
This aims to answer the biggest questions that the industry keeps asking, and what to do about it.
Things change but stay the same
Some will be aware that the actual results that recruiters achieve have barely changed since the 1980s. Despite all the technology advancements and changes we have seen over the past 4 decades, these statistics are broadly true and unchanged
Number of shifts filled per week / number of people placed (per recruiter)
Pre-Internet and cellphone etc - 70 shifts approx / 20-25 people placed
Average Billing per temp recruiter (adjusted for inflation) - $700,000 - $1,000,000
Number of candidate screens / meaningful conversations per day (per recruiter) - between 9 and 12
Add to the last point - this is agnostic of the specialization across IT, Engineering, Skilled and General Labour.
So what happened and why?
The impact of Technology
Things got faster and easier for everyone, resulting in more volume. More candidates applying, more calls, sms, administration, notes…. but still approximately the same number of placements.
IN SHORT, what has actually happened is that a growing proportion of a recruiters time is wasted effort - specifically it does not return value. More candidates to call, more attempted calls, more competition to get the candidates attention, more failed calls or voicemails, more emails to get to the meaningful connection that might drive a result. Rather than labor this point, take this as a truth that the success rate of every action a recruiter took was higher in the past and continues to diminish as the volume has increased with the advent of email, internet job boards, cellphone, smartphone and now AI.
Why Staffing and Recruiting is Broken
When you zoom out from the transactional view, and consider the human effort involved with a person being hired and starting work, it is a lot.
Candidate searches for a job (which a recruiter has written and advertised)
Researches the company (which teams have written content for)
Submits application (probably with a cover letter, which is then reviewed by a recruiter)
Scheduling tennis ( between recruiter and candidate - calls, voicemails, emails, texts)
Talks to recruiter (notes taken)
Recruiter submits to hiring manager
Hiring manager reviews
Interview scheduling (tri-party alignment of planets)
Interview preparation
Interview (with hiring manager)
Notes and recruiter follow-up
Several more interview stages repeating 8 - 11 several times
Notes followup and internal submission to HR
Offer creation and approval process
Offer negotiation
Contract Signing
Background & other checks
Exponential Multiplier Effect
Now we need to remember that each step above gets more expensive for the number of people involved and for their respective pay rates. This adds up to a lot. And this placement is what pays for the recruiter, the advertising, the compliance, admin and support services within the organization (staffing or employer).
But here’s the kicker……
It’s not just one candidate that goes through the process. Think of it like this
300 do step 1 and see the job
150 progress to step 2
100 progress to step 3 (approx average applications per role currently)
30 - 50 progress to step 4
….. and so on down to approximately 5 at step 10 (even just from this stage, only 20% of the effort creates value to the world)
But all of this, returns zero value - the other candidates don’t get the job, the interview time for rejected candidates doesn’t add value to the employer, the efforts the recruiter puts in to all the others doesn’t pay the bills
Even optimistically, at least 99% of the human effort in the process delivers ZERO value to the world.
Defining what matters
Everyone is familiar with metrics and KPIs and we spend a lot of time using them to judge activity of those around us. But to me that’s a core issue - we are measuring activity and not necessarily the right activity. Don’t confuse this with measuring and rewarding the right activity - when you know what makes your business successful encouraging more activity in this direction even if not successful 100% of the time, is still a valuable measure and target.
Staffing companies by their nature, often running on very narrow margins, do not have the luxury of employing a business analyst - but if you’re an owner considering an important hire this is the one you should hire for - and I would rank this in priority (not cost) after COO and CFO.
Your business like any other works on Revenue, Cost of Goods Sold (COGS), Expenses and capital.
Lets start with some ground rules
Expenses should not include anything that relates to the cost of revenue. Expenses will include rent, power, administrative and management salaries. It will not include advertising, background checks, recruiter salaries, variable transactional costs.
COGS is bigger than you think - its everything that you need in order to produce revenue
So what matters is things that drive COGS down and things that drive Revenue up. Simple, right?
The question comes when you start to define what drives COGS up and down
For example - more candidates drives costs UP (not revenue)
Conversion rate from applicant to Submission?
Submissions per job position?
Submission to Interview ratio?
You see, if a recruiter really only handles 10 meaningful calls in a day, you should make sure that that effort is properly split between the client and the candidate pool. You should also make sure that the recruiter is achieving a high rate of connects when they attempt to make contact with candidate (ie engaged) and that the candidates are relevant ( pre-screened if you use Glyde AI).
Too many applicants to review (even qualified or pre-screened!) = more recruiter time that does not produce revenue since most candidates don’t get hired (COGS go up)
Here’s the metrics you should know…
You should know these or have ready access to them. They’re the important basics an will help you understand why something is working or not working, but the next article hold the key 5 you should focus your business on to drive improvement in all of these areas.
How many applications per month total
How much you spend on advertising
Fully burdened cost of recruiters time spent on applications - up to submission. This is typically 50% minimum of the recruiter time depending on your structure
Apply to Connect Ratio - Meaningful connections
Apply or Connect to Submission ratio
Average Elapsed Time from Apply to submission
Average Submissions per job order position
Submission to hire ratio
Average # Applications per hire
For a simple rule => 1 to 5 are metrics that drive COGS, 6 to 9 are metrics that drive revenue
Remember to read The 5 Key Metrics to Drive Your Business
It’s not me, it’s you…
Before you get too far ahead, while it may seem like the villain of our story is the staffing or recruiting company there are some other things that have changed in the past 3 decades
Client requirements have become more stringent - background checks (ever longer in to the past and earlier in the process)
Hiring manager response times have got longer
Number of submittals to interviews to hire have increased - hiring managers are interviewing more candidates than before for each role
Interview or selection process stages
Reduced transparency (largely an effect of legislation creating legal risk)
So recruiters face the battle on two fronts, more candidates, less information and longer hiring cycles (from under 20 days in the years of newspapers, post and fax, to over 40 days today in the world of instant communication and information)
More is not better
More applicants does not produce better hiring results
The paper below outlines that as number of applicants increases past 10 applications, the value of the larger pool declines as the number of applicants increases. In other words - more choice is not adding value proportional to the cost increase it creates for the organisation that is hiring.
More applicants does not make for better results - however hiring managers are increasingly likely to seek more candidates for fear of personal failure in the hiring decision. Since the responsibility (and cost or cost justification) lies with the recruiter the hiring manager has no incentive to improve this process, since up to the point of offer they are not fully accountable for failure to hire or meet output requirements as a result.
https://serdarbirinci.weebly.com/uploads/4/8/6/3/48631293/multiple_applications_bsw_january_2023.pdf
The below says, as the cost of information rises ( the E symbol which comes from advertising cost, interview time, process time, testing etc) the number of applications increases but the additional information gained (to tell which candidate is better), drops off a cliff after 5 applicants.
