July 7, 2021

A Critical Tech Industry Recruiting Metric For Startups and SMB

Hiring new talent can be one of the most harrowing experiences for a fledgling startup or rapidly expanding SMB. A recruiting funnel can go wrong in a half-dozen places and in innumerable ways. 

Companies need to understand and use key hiring metrics in a fast-moving industry where each employee contributes a significant amount to your company’s performance (and comes with an equally significant paycheck to boot).

This article will discuss one of them: Interview to Offer (ITO) rate, its impact,  how it differs in the tech sector from general industry figures, and how you can use ITO to improve your hiring funnel.

Definition: Interview to Offer rate is defined as the percentage of candidates who receive an offer after their interview. As an example, if 100 candidates are interviewed, and 42 are given an offer (the average across all industries), then the ITO Rate is 42% (NaceWeb).

Metrics: While the average is 42%, the figures for ITO differ for tech startups and SMB, which from data given by Lever arrives at a 31% average ITO rate. Note that the data considers the interview stage to encompass all activity from the first time the candidate arrives onsite until an offer is extended.

Insights: 

  • An ITO rate significantly lower than the industry average may be a sign that the screening process is too loose (the denominator is too big) or that the interviewees are not high quality enough (the numerator is too small). 
  • From Lever data, only 17% of startup and SMB candidates make it to a screen, and 32% of those screened are invited for an interview (that’s 5.44% of the total applicants that progress to an interview). 
  • Suppose your screening percentages are as strict as the benchmarks. In that case, you should look at the filtering criteria -- potentially, there may be a mismatch between what interviewers want to see from candidates and what the screens scan for. 
  •  An ITO rate very high is certainly a vote of confidence in your recruiting funnel, but it could potentially cause concern.
  • Interviewers may be too lenient if the overall quality of those interviewed does not seem exceptionally higher than the industry average. 
  • When hiring only for a few positions, sending significantly more offers to the interview pool may be a sign of a low Offer to Acceptance rate, which is a metric we will cover in a future article. 

Impact:

ITO is a reflection of how strong the overall hiring funnel is. A reputable company advertising competitive benefits with solid job descriptions and screens will enjoy a competitive candidate pool with minimal time wasted on unqualified candidates.

Hiring is a massive sink of resources, with high time to fill (45 days average for a software engineer) and prohibitive recruiting costs costing the company considerably. According to studies, an agency fee for an engineer costs on average $24,242 (22% of salary), while in-house recruitment would still cost $13,223 (12%).

That’s not to say that it is beneficial to pump up ITO by artificially lowering the bar for interviews. According to the U.S. Department of Labor, the average cost of a bad hire is up to 30% of their annual salary. The Undercover Recruiter reports bad hires can cost $240,000 in cumulative expenses (remember, you still have to find, recruit, and onboard another person to fill in their spot afterward). 

What is needed are solid guiding principles behind your company’s recruitment strategy, the use of digital tools to track and approve hires, and to focus on providing a complete and communicative experience for your candidates. 

Recommendations: 

  • Monitor the interview process closely and ensure it is straightforward for interviewees. Lever recommends making it a point to follow up with candidates within 24-48 hours at each stage of your recruitment process. 
  • Communication is essential, and offering support and following up regarding questions and requests can go a long way to improving the candidate experience.
  • Be clear in job postings and screenings of the positions’ pay range, requirements, and responsibilities. Although candidates may accept a lower salary under some circumstances, being vague about job advancement, benefits, and compensation will likely lead to higher employee turnover.
  • Use software tools to track and manage headcount and organizational structure in your company and monitor the metrics that matter. If recruiting is expensive and complicated, each new candidate needs to be tracked, and every hire actually required. 

TruePlan offers dynamic hiring and headcount management software that centralizes requests and communication for recruiters, budget planners, finance teams, and budget owners.

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