The Only Recruiting Metric That Matters.
There’s only one real metric that matters when it comes to measuring the impact of the talent organization on the bottom line – what’s known as Revenue Per Employee (RPE).
Calculating this is so easy even a recruiter can do it – it’s simply the revenue produced by your company or business unit or market, etc. divided by your full time employee headcount.
REVENUE/HEADCOUNT = THE ONLY FORMULA YOU NEED.
If that number goes up YoY (or quarter over quarter), then you’re recruiting and retaining the right people. That’s really all the analytics you need to know when it comes to building a TA baseline and tying it to the bottom line.
There is a direct correlation between RPE and company performance; Google and Facebook, two out of the world’s three most profitable companies, have RPE of around $1 million a year.
For comparison, in Q4 2017, at one of the clients I've worked with on building better benchmarks, also a global technology provider in direct competition with the Googles and Facebooks of the world, RPE was approximately $34,209 a year (4.036 billion/11,800 FTEs). In 2016, that same client disclosed in SEC filings it had 8000 employees and 4.015 billion in revenue, or $51,186.
This YOY change is down almost 2/3 – evidencing that either the company’s hiring demand outstripped business purposes, or that there is an additional business consideration (eg re-skilling, tax impairments, offshoring) that has nothing to do with recruiting efficacy – but without the data, too often, recruiters are the ones to blame for results outside of their control.
That’s why analytics truly are the silver bullet for human capital strategy success. But we're making it too complicated. Here are four simple steps to analytics success:1. Know the Business:
Here’s the thing: recruiting must be aligned with the business. And if you’re aligned with the business, there’s no better measurement than revenue.
Everything else is marketing.
2. Know the Books.
Furthermore, HR in general, talent in particular, is almost always the owner of the biggest cost center and largest line item in the annual budget – that would be people. That means if revenue slides, then workforce planning initiatives should try to at least keep RPE flat, even if that means not backfilling some positions and limiting employee expenses through voluntary attrition or, sometimes, more sweeping action.
The mandate of talent leaders is to control expenses, and while cutting heads is a short term way to do this, RPE balances these limited gains with long term revenue growth and profitability.
This means talent organizations can sometimes lose RPE YoY, but only where it’s necessary to grow the business – and opportunity costs can be hard to prove.
Just remember, RPE is deceptively easy to implement, but takes up to five full years to really detect any patterns or drive crucial business decisions like whether to initiate a RIF (or conversely, open a new office or create a new business unit, for example).
3. Know the Benchmarks.
The shortcoming of any analytics or data science approach to TA is that the business challenges, situations and needs vary drastically between companies, employees and markets. With so many dynamic and variable factors at work, there’s no real way to compare the efficacy of a recruiting department or HR function at P&G from J&J, or the people success of a high growth startup like Atlassian against a more established company in a more traditional industry, like a WalMart.
RPE allows HR leaders to have a framework to evaluate any strategy at any company, anywhere. RPE will be different at each, but what it takes for recruiting to help that number grow steadily sure isn’t.
4. Know the Baseline.
Cut the semantics in recruiting – we don’t have to argue about performance review administration, nor the secret sauce to culture, nor how to measure innovation, or any of the other pedantic stuff TA loves to argue about. Instead, if it touches the business, it has a P&L impact (e.g. engagement, diversity), and therefore, can be measured by RPE.
I know being held to the same standards as other business units is scary, but this also forces employers to look for maximum recruiting ROI for their finite resources, which means curbing unnecessary spend.
Consider that in 2018, companies made less than 2% of their North American hires via LinkedIn, but the company represented around 30% of online job related spend in the US, and you’ll understand that CPH and RPE are basically two sides of the same coin.
Put your money where your mouth is. That’s the bottom line.