The company profit and performance are statistics that every business focuses on. However, this is the end result of multiple processes that contribute to the bottom line. This is where HR metrics become very important. It helps to bring the spotlight on why these numbers happen. HR analytics is essential to provide the story behind the turnover, such as – Is better training programs contributing to higher revenue? What was the loss to the company because certain employees considered as excellent talent left the company?
There are over 50 metrics that are important when it comes to the HR department. Let’s focus on the 5 major metrics and how to calculate them.
1. Revenue per employee
This is an effective metric to know what each employee contributes to the final turnover. Often this is ignored particularly if the employee is not in sales and does not directly have numbers against them. However, if the workforce increases, it necessarily means that the turnover should also increase to make it productive. The simple formula to calculate this is
Revenue per employee = Total revenue ÷ Total number of employees
2. Employee turnover cost
Attrition is always a headache for a business and the HR is under pressure to recruit a replacement as quickly as possible. However, along with hiring a new candidate comes the cost of training them and the time needed for them to get used to the new requirements and start contributing. Add to this the separation costs when an employee leaves and the numbers pile up. It is important to calculate the cost of attrition to the company and put in processes to correct this where possible. The two HR metric to calculate this is
Overall turnover rate = Number of employees who left in the period – Number at the beginning of the period *100
Employee turnover cost = Total cost of separation + recruitment costs + training / total number of hires in that period
3. Compensation to revenue ratio
This is an important metric keeping in mind that salaries need to justify the revenue being made. Can the business continue to provide benefits packages at the level they are? These numbers are important to decide on the compensation package for new hires. This can be easily calculated by taking the compensation + benefit costs for all employees and divided by the total revenue.
4. Time to hire
This is a way to calculate how efficient the company’s recruitment process is. To calculate this, a consistent start date is needed. This could be the time when the manager submits a job opening or when the HR makes the job opening active by posting it. The end date is usually when the candidate accepts the job offer. A good average time to hire is about 22.9 days though it can go up to 47 days for specific industries like healthcare.
5. HR to employee ratio
This is most important to determine how effective HR cost efficiency is. Cost-effective HR software available such as Resumemantra ATS has made HR recruiting efficiencies much higher. An HR department that has a well-developed analytical ability can have a smaller number of HR professionals.
Cost of HR per employee =Total HR salary and benefits ÷ Number of employees
HR-to-Employee Ratio = (Total number of HR / Total number of Employees) x 100
For HR, this data can help them streamline their own department. This calculation can also include cost of software that is used for training, metric keeping and hiring. This will help leaders to calculate ROI better.