What does yield ratio mean?
A “yield ratio” is a common metric in corporate finance that you might be familiar with. On the other hand, a yield ratio may also be used as an HR measure that can help you hire better.
Even though yield ratio is an important metric for any human resources department, understanding what it is, how to calculate it, and what formula to use may be a challenge. Any recruiter, manager, or member of an HR team should use this measure. This comprehensive guide will teach you all there is to know about yield ratio.
As a recruiting measure, yield ratio shows the proportion of applicants who go from one stage of the hiring pipeline to another. The ratio tracks changes between individual steps (such as applications and screening calls) and from beginning to end (applications to hires).
The concept of yield ratio is common in the world of finance. In finance, the dividend yield ratio is a tool for determining the yearly dividend payout as a percentage of stock price. While the recruiting yield ratio does not directly evaluate ROI, it is nonetheless an important and significant metric for any business.
What is the purpose of the yield ratio?
Finding the yield ratio is helpful for many reasons:
If you want to know if your recruitment and sourcing strategy is working, you may measure its performance. Social media, referrals, job boards, external agencies, and so on are all examples of sourcing tactics. To find out how effective a certain job board is, you may, for instance, compute its yield ratio. It would be considered a low yield if, out of 1,000 resumes submitted through a certain job board, just 2% made it past the screening round for your vacant position. Not many competent people applied. This can mean that the job posting was ineffective or that the market is not doing well. With this ratio in hand, you can compare all of your options and choose the one that works best for you.
Time to hire is a metric that helps you pinpoint recruiting process bottlenecks. It counts the duration from when a candidate begins your pipeline (by application or sourcing) until they accept a job offer. Since expenses rise in direct proportion to the time it takes to fill a position, this is an important consideration for recruiters. One strategy to enhance the effectiveness of the hiring process is to use a yield ratio, which identifies the places of inefficiency. For instance, there might be a task that is overly hard, and only a few people are able to pass it. Furthermore, it may reveal an interviewer who has unreasonable expectations. On the other hand, it’s possible that the filters used in your initial screening are removing qualified applicants.
A yield ratio can help you spot interview bias or other forms of inherent prejudice in the hiring process. Consider the following scenario: you have an equal number of female and male applicants through your screening procedure. However, when it comes time for the last round of interviews, you find that only 3 men have made it. This statistic can help uncover instances of gender prejudice that may have occurred throughout the recruitment procedure.
In addition, you can use this data to improve the efficiency and equity of your hiring process.
A real-world application of this would be the FBI’s decision to rethink its hiring practices in light of the yield ratio. They determined that in order to fill the available seats each year, a minimum of 16,000 candidates have to go through this arduous process. But just 12,000 people applied to the FBI in 2016. In order to discover new agents, they understood they needed to increase the number of applications and monitor their progress through the hiring process.
As part of its efforts to diversify its special agent pool, the FBI revamped its hiring practices. Despite the complexity and need for a comprehensive approach to the diversity problem, the FBI was successful in pinpointing the specific aspect of their hiring practices that was discriminatory against candidates from underrepresented groups.
After analyzing over two thousand interviews and performing a number of other analyses and computations, they found that the interview questions were out of date. Similarly, the admission test had lost all significance. To address this issue, interviewers and managers received training on overcoming unconscious prejudice. The FBI also changed the application procedure, which had previously demanded too much info too quickly.
Calculation of yield ratio
Using the following formula, one may easily get the yield ratio:
The yield ratio can be expressed as the number of applicants who progressed through the stage divided by the total number of applicants.
The stages might, thus, include:
- A preliminary interview or screening procedure
- From the second to the last interview
- From the initial conversation to the last step
The ratio is determined by the stage for which the yield is being calculated.
Obviously, you can also figure out the ratio at each stage of the hiring process. Just like the FBI did, this will give you a sense of how many applications are usually required to make one hire.
The formula for yield ratio
Here, we will walk you through the actual process of determining the yield ratio.
To begin tracking this measure, you must first gather relevant data, such as the total number of applicants at each stage of the hiring process or demographic information. Fortunately, you can get the data you need with the help of your Applicant Tracking System (ATS).
The calculation for the ratio is as easy as it seems. Take this hypothetical situation: out of 150 applicants, 110 were women, and forty were men. Out of the ten that made it to the final round of interviews, nine were male. Here’s how the math would look:
10 / 150 x 100% = 6.6%
The yield ratio for females would appear thus:
1 / 110 x 100% = 0.9%
This is a relatively early stage of the recruiting process, hence the push-through percentage for females is 0.9%. To address this, you may examine the procedure to see whether there are any implicit or explicit prejudices or questions that target women unfairly.
Continuing with the same example, if out of 100 candidates who completed the case study, 5 advanced to the group assessment, the next step in the process, your computation would be:
5 / 100 x 100% = 5%
A mere five percent of those who applied actually advanced to the next round. Assigning a case study to an excessive number of unqualified individuals would lead to a bottleneck. Consequently, you are squandering the time of both the candidates and yourself. You also wouldn’t have enough applicants to move forward with a group evaluation, hurting your hiring process.
Because of this, a yield ratio is useful; it allows you to investigate the matter further. Based on the findings, you may want to reconsider the case study’s current assignee and establish more stringent selection criteria. Perhaps you will assign it at a later stage of the selecting procedure. It could also indicate that you must revise your case study since it is too difficult.
Think about your assessment rate as well. If, for instance, only five applicants were able to pass the case study with an 80%, consider lowering the score requirement to 60%. As a result, both the number of applicants and the quality of their applications would increase.
What yield ratio should you aim for?
Is a yield ratio of 50% an acceptable one? 5%? Or even 10%?
There isn’t a simple response. The stage of the recruitment pipeline for which you’re calculating the ratio, as well as your targeting and selection criteria, will determine this.
A 25% yield ratio between applications and screening interviews, for instance, could mean that your job postings are doing well but are too general. Ultimately, in order to choose the top talent, you must restrict the amount of applicants. For more precise and targeted results, you might wish to tweak your filters, campaigns, or selection criteria.
You can reduce the likelihood of negative effects on your recruiting efforts by monitoring this measure across various demographic groupings.
Another good technique is to compare the recruiting yield ratios of different departments (such as finance, legal, and IT). Record the metric regardless of the employee’s level of seniority.
In general, be very careful with how you interpret and analyze the outcomes of yield ratio calculations and tracking across your business. If you want to know exactly what parts of your hiring process require tweaking, this will help you out. For instance, you may find gender variances in your yield ratio for senior roles, even while it’s the same for entry-level occupations.
Going a step further, you might calculate the yield ratios of specific recruiters. You can help managers and recruiters share information with one other based on the results of these ratios. They can exchange strategies and methods that consistently yield top-notch applicants.
A second option is to compare your business to standards in your sector. Consider the size and nature of your organization, the industry in which you operate, and the nature of the position in question when making this determination.
One last thing
Your company’s human resources and recruiting teams can benefit greatly from the yield ratio. It improves the efficiency and effectiveness of your recruitment process while decreasing bias, and it helps you organize your recruiting pipeline and budget better.
To improve your recruiting efforts, gather data from your applicant tracking system (ATS) and make analysis a regular part of your workflow.
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