Which KPIs to use for IT recruitment

KPI stands for Key Performance Indicator and is a number for how well a strategy works. In the sales profession, you often hear about KPIs such as CAC, churn and LTV. CAC stands for Cost of Acquisition and is the cost of acquiring leads and converting them into customers, churn is the percentage of customers that have been lost, and LTV stands Life Time Value and is the number of how much you have earned from a customer as long as the customer relationship lasted.

These KPIs are also highly relevant when working with a recruitment strategy to build good IT teams, and here is why:

Cost of Acquisition

The low unemployment rate in the IT industry drives the prices for new hires sky high. Due to the imbalance in the labor market, it is not enough to spend a few thousand on an advertisement and expect to receive enough good applications. In order to be successful with IT recruitment in this labor market, you must have a proactive approach where you hunt for possible candidates, and use several tactics and channels to reach your goal.

This requires more marketing expertise and a completely different dedication to recruitment processes than it has done in the past. Regardless of whether you do this job in-house or outsource it, the CAC in IT recruitment is therefore higher than for other roles.

Recruitment agencies that specialize in the subject area require NOK 100-300,000 per recruitment. When you come up with such sums, CAC is definitely a KPI that you should measure and try to influence.

Churn

At WA.works you only pay NOK 1,995/month to search through 15,000 IT candidates. This is therefore a good tool for reducing CAC. But if you have high churn, i.e. a high percentage of existing employees who leave, it will still be difficult to create organizational growth.

If you hire one new colleague, but lose two, you end up taking a step back rather than the planned step forward. In this scenario, one would most likely have benefited more from using the resources used on the new hire to motivate current colleagues to stay. Growing companies in particular can quickly fall into the trap of focusing more on attracting new employees, rather than devoting sufficient time and resources to maintaining those they have.

There is generally high churn in IT. Not because you have lower well-being, but because there is such high competition and pressure from other employers that it is easier to be introduced to new opportunities. This confirms precisely why churn is such an important KPI in IT recruitment.

Life Time Value

But we would say the most important KPI is LTV. LTV measures the total value of what an employee produces during his time in the company.

How to measure the LTV of employees will vary from role to role. The value of consultants is calculated based on an invoicing basis and margins, while the value of a manager is calculated based on the team's performance and satisfaction.

There are several ways you can increase your LTV, reducing churn is one of them. Regardless of how you define value creation, an employee who works for you for 3 years will create a higher total value than if the same person works there for 2 years. It is therefore important to include the loss of value and costs of recruiting a replacement, when entering into a salary negotiation.

Other ways you can increase LTV are by increasing the production of existing employees, hiring employees who produce more, or removing people who produce too little value.

Many of the tips for retaining an employee are also the same as those used to increase the production of an employee. It is about everything from offering better development opportunities, health services, pay, flextime and the like.

To improve the quality of new hires, you can read this article about, for example, 4 mistakes you make in IT recruitment. Removing people with low production may be seen as a brutal measure, and tactics for this should only be implemented if measures to increase production have failed.

If you achieve a high LTV, it's like creating a product that sells itself. If you have created a workplace with high value creation, this will defend a high CAC, but also reduce it considerably. Through their high competence, well-being and loyalty to the workplace, existing employees will organically make it easier to recruit new employees.

Example of KPI calculations in recruitment:
CAC in NOK =

(NOK accounting marketing + NOK accounting systems + NOK accounting personnel) / # new hires

Churn in % =

(# employees when entering the period + # new hires in the period - # employees when you exit the period) / # # employees when you enter the period

LTV in NOK =

(Avg. hourly rate x avg. # invoiced hours per month x avg. # months as an employee) x avg. profit margin