How To Calculate Quality Of Hire

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How To Calculate Quality Of Hire

If you've been in recruitment any length of time, you've probably made some incredible hires - ones that blew away company metrics and were a great addition to the team. But, you've probably also had a few duds- let's be honest, we all have. You know the ones. The candidate who looks like they're perfect for the role. Their resume is spotless, they're polished and charismatic in every interview, they ace every assessment test, and then when it comes time to perform, they're a sinking ship. This is why we track the quality of every hire.

Quality of Hire in Recruitment

The stark contrast between hiring expectations and reality, especially when it comes to our most promising candidates, underscores the need to accurately measure the quality of each hire to ensure we're putting the best people in the best positions for their skills. Quality of hiring metrics help us tailor our recruitment strategies, as well as highlight areas for improvement in our hiring processes and the candidates we choose to fill our open roles.

Quality of Hire Meaning

So what exactly is the quality of hire? It's a metric that measures how well an employee performs in their role and contributes to the organization as a team and as a whole. "Quality of hire" allows us to go deeper than our gut feelings about the hiring processes we've built, and use data to assess them holistically.

How to Calculate Quality of Hire

The basic quality of hire formula looks like this: (Performance + Productivity + Retention) / Hiring Cost = Quality of Hire

As you can see, we're accounting for primary metrics like job performance, productivity, retention, and cost-per-hire in the basic metrics. But these are high-level. If you've already calculated these metrics and are still struggling to build a hiring process that fits your organizational needs, you may need to go a layer deeper.

The first step is to establish baseline key performance indicators (KPIs) for each role. For example, suppose you're hiring an account executive. In that case, you probably have an idea of the total revenue they need to contribute to be a revenue-positive employee- for many SaaS account executives, this number is 1- 2 per month or 4-6 sales per quarter and fluctuates between 150K- 250K per year. This gives us a good performance indicator to track.

Then, we add in how quickly this new hire begins performing at this level. This gives us our productivity or "ramp speed" for many SaaS companies. Once you have performance and productivity metrics you can see how quickly and effectively new hires are completing tasks and contributing to their team. Tracking these two metrics will give you insights into how to improve the quality of hire across your organization.

But if we stop here, we only have a vague idea of how well a candidate is doing at their job and within the company. This would be analogous to looking at a frame without seeing the picture inside it- we still need more data points to truly assess the quality of hire.

Calculating employee retention, cultural fit, and overall job satisfaction gives you a much clearer picture of the quality of hire. When employees are engaged and happy in their roles, it directly impacts their performance and productivity, making them a higher quality hire. So, focusing on these indicators will help a company improve candidate selection, and ultimately, enhance the overall workforce quality.

Interview intelligence can help you assess a candidate's skills in real-time, delivering interview insights to uncover how a candidate may perform in a role- this will help you assess candidates with your quality of hire metrics in mind.

Understanding The Quality Of Hire Formula

Understanding the “quality of hire formula” itself isn't enough. To improve your hiring processes you'll need to be able to use the quality of hire formula to gain a holistic view of every employee's value to the company. This is critical as the fundamental goal of the quality of hire calculation is to analyze the real return on investment (ROI) of your hiring decisions- which enables a strategic approach to future recruitment.

So let's break down a far more comprehensive quality of hire formula and talk about each step. The full quality of hire formula looks like this:

(Job Performance + Productivity + Retention + Cultural Fit + Job Satisfaction) / Total Cost per Hire = Quality of Hire

Including cultural fit and job satisfaction in our KPIs helps us acknowledge an individual's potential for long-term happiness in a role. This may seem like a small factor but it will have a significant impact on their performance and loyalty to the company.

Calculating Quality of Hire for Different Roles And Teams

While the basic quality of hire formula works well for many business units, it's important to adjust those metrics for specific roles and teams. For example, hiring for a sales position might prioritize performance over cultural fit or job satisfaction as this role is primarily performance-based. On the other hand, hiring for a creative role may require a stronger focus on cultural fit and job satisfaction as these factors greatly impact creativity and innovation.

This is why the basic formula is not enough for many organizations.

The most compelling cases for an expanded quality-of-hire formula are marketing teams, IT, and customer service. These are roles where success hinges on productivity, knowledge, technical skills, and performance, as much as cultural fit and job satisfaction. Use cases like these highlight the importance of factoring in the unique objectives and goals of each role prior to formulating your quality of hire metrics. Customizing this formula for individual roles and teams will yield a more precise evaluation of hire quality, and give you a more accurate perspective of your hiring processes.

Quality Of Hire Metrics

As we discussed in the last section, improving the quality of hires within your organization requires a detailed look at organizational as well as individual objectives. Quality of hire metrics when viewed through the company's lens offer a data-driven approach to assessing the overall recruitment quality.

How to measure the quality of hire starts with clear objectives and measurable goals for every role. These goals could come from a current high-performing employee who's making a big impact on the company's bottom line, or they could be found in your sprints and quarterly objectives- in either case, it's impossible to effectively measure the quality of hires without a benchmark. 

Setting a quality of hire benchmark is like creating a target that must be met or exceeded with each new hire. These benchmarks vary widely by industry, organization, and role, but are rooted in the performance expectations of a top-performing employee.

For a quality of hire example, consider a technology firm seeking to hire a software developer. They may set benchmarks based on their top performers' average bug resolution time, features developed per quarter, and retention. A successful hire would meet or exceed these benchmarks indicating that your recruitment systems are identifying quality prospects.

Interview intelligence software can give you initial insights into how a candidate fits the role. Once hired, employee engagement surveys and performance metrics can further validate these findings, offering a comprehensive view of how well new hires integrate and perform within their given responsibilities.

Improving Quality Of Hire

Improving the quality of hire is key for companies aiming to continually improve their workforce competency and operational efficiency. One effective strategy for how to improve the quality of hire is the implementation of a well-defined recruitment process that includes structured interviews, skill assessments, and personality tests. These three assessment systems combine to help recruitment teams identify candidates with not only the right skill set but also those who align with the company's culture and values, leading to better recruitment outcomes.

Once these assessment systems are in place, monitoring the quality of hire through the use of analytics and data can help you see your hiring results objectively and iterate your recruitment processes. Monitoring can also help you identify patterns or issues early so that adjustments can be made to recruitment processes before they have a negative impact.

Additionally, developing a quality-of-hire scorecard can help you better assess candidates in the interview process. This scorecard should include key performance indicators (KPIs) relevant to the role, such as job performance, retention rates, productivity, and cultural fit. If you'd like to see how the quality of the hire scorecard can inform your interview, click this link and paste your job description into the text box - in a few minutes we'll deliver a personalized interview guide to your email with structured interview questions to ask candidates.

When executed effectively, these strategies significantly improve recruitment results, guaranteeing that new employees are perfectly matched for their positions and possess the capacity to positively impact your organization.

Don't settle for average. Elevate your recruitment process by implementing tools like interview intelligence software and quality-of-hire scorecards to ensure you're consistently bringing in top talent that meets or exceeds your expectations. If you'd like to see how Pillar can help you build a recruitment process that drives meaningful change, book your demo today.