The Science of Recruitment Industry Success- Part 2

In my previous article, I wrote that recruitment industry success combines art and science. I shared my experience that most staffing & recruiting firm owners and leaders under-utilize the science aspect of the business. This decreases your profitability and stability while increasing your stress.  Let’s consider how to use the science side of the business as a recruitment strategy to increase your recruitment fees consistently. 

When using key metrics, it’s important to separate “leading indicators” from “lagging indicators.” Leading indicators are the activities that happen first, which you can directly control. Lagging indicators happen later due to these activities. You don’t control lagging indicators because other people are involved and do things that impact your results. 

LEADING INDICATOR METRICS TO TRACK

 Initial prospect conversations per job order. The recruiting business runs on statistics/ratios. The top end of the sales funnel that leads to bringing in job orders is the number of new prospects you speak to for the first time in a given period of time.  It’s essential to separate your actual conversation whether phone, video, or in-person from your electronic outreach attempts (e.g., emails and LinkedIn).  Electronic outreach is an important lead generation strategy to build awareness and credibility. It's intended to support your business development efforts by attracting prospects to want to talk to you. When electronic outreach is done well, you engage in warm calls instead of cold calls. 

 The number of candidates you speak to per job order submittal. Just as the client/job order side of the business, separate your electronic outreach attempts (e.g., emails and LinkedIn) from your phone outreach. I’m referring here to the number of initial conversations with candidates before you interview them to determine fit and interest. You have more control over this metric than the number of candidates you interview. If you’re working in a specialty that requires many candidate conversations to find one legitimate submittal, you’ll need sizeable fees with exclusives and/or retainers. Otherwise, your business model won't be sustainable if you’re not following recruitment best practices. 

The number of candidate submittals per first-time interview: This metric is a good indicator of your firm’s candidate quality processes. If the candidates submitted fit the job order specs, but you struggle to get them client interviews, it tells you about your performance on the client-facing side of your business. 

The number of job orders from existing clients. This is an indicator of how well you've communicated with and delivered for existing clients. It's more difficult to develop a new quality client than it is to keep your current quality clients. The most successful firms do well in both areas.

LAGGING INDICATOR METRICS TO TRACK:

Job order fill ratio: In my opinion, this is the single most important health indicator for your business because it tells you the percentage of time your firm is successful. Increasing this metric is a critical element of any successful recruitment strategy. Unless you have an unusual business model, filling jobs is the only way for you to make money in the recruitment industry. Job order fill ratio is the culmination of every metric you track. If it’s too low, you know one or more of your other ratios are not in the healthy range. 

The number of first-time client/candidate interviews per placement: This metric tells you one or more of the following: the quality of your candidate recruitment strategy and processes, the quality of your clients and job orders, and/or the performance of your client-facing people are doing. 

The average fee per placement (average net margin per placement for temp/contact): This metric provides critical data to calculate the dollar value of each unit of activity. It also helps you gauge the health and viability of your current business model. For example, if your average fee per placement is low, you must write a lot of job orders with a high job order fill ratio, and your cost per placement needs to be low. If any of these metrics is off, you’re not applying recruitment best practices and your risk business failure. 

PUTTING IT ALL TOGETHER 

When you track the above metrics, you can put the science of recruitment industry success to work for you. This is because you can now calculate the number of specific controllable actions you need to take to reach your goals on both the client and candidate side of the business and set you and your recruitment consultants up for success. 

Here’s an example for the client side of the business: Let’s say the annual goal of a full desk recruiter named Sue is $500,000, and the following metrics apply based on Sue’s past performance.  

• The average placement fee is $25,000; therefore, Sue needs to fill 20 jobs in a year ($500,000 /$25,000).
• The job order fill ratio is 40%; therefore, Sue needs to bring in 50 job orders in a year (20/.4).
• Sue brings in an average of 35 job orders per year from repeat clients. Therefore she needs to bring in 15 job orders from new client prospects (50-34).
• The average client gives Sue 3 new job orders per year.  Thus she needs to develop 5 new clients this year (15/3)
• The average number of “initial prospect conversations” to bring in a new client is  5/1. This means Sue needs to have 25 initial prospect conversations (5X5) this year.
• The percentage of new client prospects who engage and want further conversations from Sue's electronic outreach messages in a year is 1%. Thus she needs to have a list of 2500 quality prospects to generate 25 initial conversations this year

This data translates into Sue’s most controllable activities:

• Continue to deliver quality results on searches with existing clients
• Regularly communicate with existing clients to keep the relationships strong
• Build a quality prospect list of at least 2500 people and send useful content to them twice per month.  

The client sales and marketing plan provide Sue with an objective, scientific/data-based method to reach her business development goals that lead to $500,000 in revenue this year. Despite the ups and downs, hot streaks, and cold streaks, Sue can feel confident that if she consistently executes her most controllable activities, she is likely to produce very close to $500,000 in revenue. 

The metrics on the candidate side follow the same logic and translate into the number of candidates Sue needs to speak to per week to meet her goals. 

Another advantage of adopting the use of key metrics as a recruitment best practice is that it allows you to identify and solve your critical business problems at the root cause level. For example, if your job order fill ratio falls from 40% to 30%, you can review your other ratios to identify the underlying issues. From there, you can correct the problems at their source. Make collection and analysis of key metrics part of your recruiter training. When you and your recruitment consultants make this a habit, you’ll execute a sound recruitment strategy. Otherwise, you’ll resort to hunches and guesswork.