Is your company “Talent Profitable”? Can you answer if and why your Talent team is expensive or underinvested? We believe Talent Acquisition can take a page from SaaS sales and marketing for a more strategic way to measure Talent organizations.

Are you Talent Profitable?

Most Talent Acquisition teams measure a mix of the same things: roles filled, time to fill, time to hire, offer acceptance rate, capacity, and maybe conversion rates and diversity numbers.

These are OK, but in my opinion they fail to capture the big picture.

Neither of these take into account how much it cost to hire, and the value that each hire brings to the company.

If a company values talent as much as they value customers (as they should), they will benefit from looking at Talent teams from a different angle.

A company that spends more money to bring a customer then the revenue that customer brings doesn’t have a profitable strategy. A similar framework can be applied to Talent.

One of the best ways that sales and marketing teams measure that is by using LTV/CAC.

LTV/CAC

LTV, or Customer Lifetime Value, is the metric for how much revenue, on average, a customer brings to your business throughout their lives.

CAC, or Customer Acquisition Cost, measures how much it costs, on average, to get one new customer.

LTV/CAC is how a business measures if the gears are generating profit or eating all the cash.

If your LTV/CAC is below 1, the company is either spending too much, or the customers spending too little. If your LTV/CAC is too high, the company may be underinvesting in sales & marketing and losing a growth opportunity.

And what does this all have to do with Talent Acquisition?

In comes TLTV/TAC

In the same way that LTV/CAC opens the way for different strategies, such as raising prices, lowering acquisition costs, or changing customer persona to reduce churn, our TLTV/TAC metric can help Talent leaders have better conversations about their Talent strategy.

TLTV, or Talent Lifetime Value, is measured by how much value, on average, an employee brings the company before leaving. We measure this by multiplying the Revenue / Headcount times the average employee tenure.

Average tenure may be low if it’s a company is new, is on high growth mode, or if attrition is too high. The higher the average tenure, the more value a new hire brings the company on average.

TAC, or Talent Acquisition Cost, is the total investment in the Talent team, considering salaries, tools, and employer branding campaigns, divided by the total number of new hires.

This metric will give you an estimate of how much it costs to fill a single role on average.

The TLTV/TAC ratio measures if the company is investing in Talent Acquisition efficiently.

With this ratio in mind, an organization can work together more strategically to pull the right levers.

  • If the ratio is too low, you either have to increase TLTV by reducing attrition, having better hiring discipline and keeping Revenue / Headcount high, or reducing the cost to hire by making the TA team more efficient;
  • If the ratio is too high, the company may be underinvested in their Talent strategy. One look at the supporting metrics should help you tell the story.