Net Hire Ratio is a must-have recruiting metric in a data-driven HR culture. This guide will tell you everything you need to know about Net Hire ratio and provide some best practice advice.
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What is Net Hire Ratio?
Net Hire Ratio represents the number of new hires for every termination in the reporting period. In other words, it shows the total net growth or loss of employee headcount for a given period. For example, a Net Hire Ratio of 1.2 means that the organization hired 120 recruits for every 100 departed employees during a reporting period.
If Net Hire Ratio is greater than 1, it means that the workforce has grown in size.
If Net Hire Ratio is equal to 1, it means that the workforce size stays the same.
If Net Hire Ratio is less than 1, it means the workforce shrank.
Why Measure Net Hire Ratio
Net Hire Ratio is the most accurate way to tell if your workforce is growing or shrinking. Whereas Headcount reporting provides a snapshot of the workforce size in time, Net Hire Ratio takes into consideration changes from both hiring and turnover activities. It also shows the direction and the rate at which the workforce is growing or shrinking. HR can also use Net Hire Ratio along with Cost per Hire as indicators of the need to increase recruiting efforts, resources, and/or hiring activity, as well as an indicator of the need to reduce uncontrolled voluntary turnover. Organizations should have a Net Hire Ratio target that aligns with their talent strategy, whether it is expansion or reduction. In either case, we recommend HR track and compare historical Net Hire Ratio trends with the Total Cost of Workforce change rates to quickly spot any irregular workforce trends.
How to Calculate Net Hire Ratio
Definition: Comparison of new hires to terminations, showing the net growth at the organization for a given period.
Use This Metric to Make Better Workforce Decisions
Example 1: An Excellent Predictive Indicator for Skill and Headcount Gap Many organizations do not have an easy way to proactively spot negative turnover trends among critical and core job roles. Usually, these trends only surface when an immediate intervention is required, or knowledge loss risk becomes an apparent issue. These job roles tend to be decentralized and scattered in various business lines and geographical location. A few examples of recent job roles with unexpected talent shortages are cybersecurity roles, lab technicians, and accountants. Net Hire Ratio is a very effective metric that HR can use to take the first step in becoming more proactive in addressing their headcount and skill gaps.
Example 2: Filtering Net Hire Ratio by Workforce Dimensions for Further Insights Where data allows, we recommend HR filter their Net Hire Ratio data by various workforce dimensions to gain valuable insight into the movement of talent across the organization. For example, HR can drill down Net Hire Ratio to the job category level to see which part of the workforce is increasing or decreasing in size. For a hospital, this approach can be used to check if critical and hard to fill Nursing roles are growing, shrinking or remaining flat. A well thought out job classification framework will be important to identify changes by workforce dimensions quickly and easily.
Example 3: A Strategic and Operational KPI for Workforce Planning Because Net Hire Ratio is a single metric that is very effective in capturing the changes in your workforce size, we recommend using this metric in combination with other workforce cost and productivity measurements such as Human Capital ROI Ratio and Total Cost of Workforce (TCOW) for workforce planning purposes. Recruiting teams can also use Net Hire Ratio to set hiring targets and monitor results for different job categories, business lines, and geographical locations. Below is an example of how layering Time to Fill with Retention Rate can help discover underlying recruiting issues.