Internal Hire Rate: What It Is, Why Use It, and How to Calculate It

Updated: Apr 5

Despite the changing labor market, internal hiring remains one of employers’ best talent sources according to a recent study by the University of Minnesota. Not only does it incur fewer expenses, but employees who are hired internally are also more likely to be high-performers, highly engaged, and less likely to leave.

For these reasons, being able to monitor internal hiring activities and measure its impact on business results is critical for recruiting successes.

This guide will help explain what Internal Hire Rate is, why it matters, how to calculate it, and how to best use it.

Table of Contents

  1. What are Internal Hires and Internal Hire Rate

  2. Why Internal Hire Rate Matters

  3. How to Calculate Internal Hire Rate

  4. Use Internal Hire Rate to Make Better Workforce Decisions

What are Internal Hires and Internal Hire Rate?

Internal hires occur when the organization fills open positions with existing employees. It includes both lateral and vertical movements of employees across the organization. ​ Companies use Internal Hire Rate to capture the total number of positions filled internally via promotion, transfer, or other moves (internal hires may or may not be accompanied by an increase in compensation), expressed as a percentage of total average employee headcount. ​ You can find examples of what are considered internal hires below: ​ Internal Hires ✔️ Promotions ✔️ Transfers from one department to another ✔️ Transfers from another business unit ✔️ Relocations ✔️ Reassignments ​ NOT Internal Hires ❌ Contingent workers ❌ Direct sourcing ❌ Agency / outsourcers ❌ Advertising ❌ Internet ❌ Employee referral

Why Internal Hire Rate Matters

Internal Hire Rate is commonly used to measure, track, and benchmark the level of internal mobility and career opportunity inside the organization. ​ Internal Hire Rate is a strongly linked leading indicator of reduced cost per hire since internal movements are considered very low-cost sources for new hires compared with most external hire sources. Benefits of internal hires vs external hires include:

  • External hires cost 18% more than internal hires

  • External hires are 21% more likely to leave during the first year

  • Employees stay 41% longer at companies with high internal hiring

How to Calculate Internal Hire Rate

Definition: The total number of positions filled internally via promotion, transfer or other moves, expressed as a percentage of total average employee headcount.

Use Internal Hire Rate to Make Better Workforce Decisions

Example 1: Examine Internal Hire Rate by Different Workforce Dimensions We recommend examining Internal Hire Rate by measurement dimensions such as workforce category, critical job groups, performance category, tenure category, and business unit. By analyzing the data this way, you can assess if hiring internally is a superior predictor of higher levels of performance and success for new hires at the organization.

Example 2: Combine Internal Hiring with Other Data Sources for More Insights

When analyzed in combination with Human Capital ROI Ratio, performance levels, turnover, tenure, and career path metrics, Internal Hire Rate can be a predictor of decreasing cost per hire, increasing or decreasing quality of hire, high performers, new hire engagement, and new hire turnover.

Example 3: A Case Study on the Impact of Internal Hires You can follow this link to download our case study on measuring the impact of internal hires for a regional healthcare provider. Summary: Integrating recruiting with other HR data sources enables a multi-hospital healthcare provider to pinpoint their best talent sources and optimize their recruiting strategy. Key Questions:

  1. Is it better to build, buy, or rent talent?

  2. What recruiting source yields the greatest number of high performers? Is internal mobility a source of value or turnover and cost?

  3. Can we model our workforce to optimize cost, profit, and productivity?

Impact: 10% increase in internal hiring resulting in $7.1 million in predicted salary cost savings

Want to see how your organization can better measure and track the impact of internal hires? Talk to us.

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