What Is A Yield Ratio? (Importance And How To Calculate)
Updated 29 September 2022
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The yield ratio is a useful way of measuring the success of various recruitment and investment strategies. In recruitment, it helps you to find the ratio of candidates who progress from one stage to another in the hiring process. Learning about this ratio and how to calculate it can help you significantly improve the efficiency of the recruitment process. In this article, we define the yield ratio, review how to calculate it, discuss the importance of calculating this ratio, answer a few frequently asked questions and explore some examples.
What Is A Yield Ratio?
The yield ratio is a metric that recruiting professionals use to show the percentage of candidates that qualify from one recruitment stage to the next. Its typical use is determining how many candidates the company hires from the total number of applications. You can also use this metric at many stages of the hiring process. Such ratios also allow recruitment professionals to assess the quality of each candidate source and eventually reduce recruitment costs by focusing on the sources that provide the most qualified candidates.
This ratio is also useful in finances, where it helps to calculate how much a company listed on a stock market pays its investors through dividends compared to the current market price of their stocks. This helps investors determine how much cash flow they can get from each stock investment. It is an important ratio for value investors, who rely on stock dividends and long-term growth rather than short-term capital gain.
Related: What Is A Stock Option? (With Definition, Types And Benefits)
How To Calculate This Ratio
Consider following these steps to calculate this ratio:
1. Ensure you have quality data
To calculate this ratio in recruitment and investment situations, you require the necessary data. For assessing the success of the recruitment process, you require the exact number of candidates who entered each recruitment stage and how many successfully advanced to the next stage. To calculate the efficiency of an investment, you require the price of a single share and the dividends it generates.
Related: Top 20 Big Data Tools: Big Data And Types of Big Data Jobs
2. Apply the formula
Once you have the necessary numbers, you can apply the formula and the ratio. The formula for calculating the ratio for recruitment yield is:
Yield ratio for recruitment stage X = Number of candidates who passed recruitment stage X / total number of candidates who came in at recruitment stage X
The formula for calculating the ratio for dividend yield is:
Dividend yield ratio = Dividend per share / current value of a share
Related: What Is Capital Budgeting? (Definition And Methods)
3. Analyse the results
Calculating this ratio alone may not provide many useful conclusions. It is important that you understand the significance of the number and compare it to past or industry standard ratios to determine its significance. Evaluating the quality of a recruitment process often involves comparing the output ratio of one recruitment stage to another to determine where most candidates fail. When determining the value of your dividends, analysing the results may involve comparing a stock's ratio for dividend yield to that of other stocks in your portfolio and determining which stock is generating more yield.
Related: How To Become A Stock Trader (With Skills And Salaries)
Importance Of Calculating This Ratio
Following are a few important reasons such ratios are important for an organisation during the recruitment process:
Setting realistic expectations
You can use the metrics from past job postings to prepare managers and hiring teams for the potential challenges in the hiring process. Communicating the applicant-to-hire ratio can assist you in explaining why the application process takes so long and how much effort you are putting into finding qualified candidates for open positions. For instance, if you work for a company with a consistently high applicant-to-hire ratio, you can use this information for:
Scheduling time to review application materials
Advocating for additional team members to help in the hiring process
Setting a realistic timeline for interviewing and hiring candidates
Reviewing sourcing strategies' effectiveness
You can determine whether your talent acquisition and recruitment strategy are achieving the desired outcome. The strategies for sourcing candidates often include social media, job boards, external agencies or referrals. By evaluating the ratio of applications to hire, you may determine the efficacy of a specific channel.
For example, you may have a low yield if your job posting received 500 applications from a specific job board and only 2% of them passed the screening phase. You did not attract a large number of suitable candidates. It may also indicate that the market is weak or that the job advertisement was not attractive enough. You can apply this ratio to all sources to determine which meets your requirements.
Time to hire is the amount of time between when a candidate enters your recruitment pipeline through sourcing or application and when they accept a job offer. It is a crucial area of focus for recruiters, as the hiring costs often increase with more time. This recruitment ratio is one method for enhancing the efficiency of the recruitment process, as it helps identify the cycle's bottlenecks.
For example, a task in the application process may be difficult and cause fewer applications despite high visits to job postings. A low ratio at other stages may suggest that the interviewer had unreasonable expectations or the initial screening process excludes qualified candidates because of the filters applied.
Finding bias in the process
Such ratios may also help identify any interview biases or inherent biases that may exist in the recruitment process. For instance, the screening process may lead to the same number of male and female candidates for the interview round but all the job offers go to male candidates. This may indicate a potential gender bias in the interview process.
Related: What Is Recruitment In HR? (With Types, Process And Tips)
Frequently Asked Questions
Here are a few of the frequently asked questions about these ratios:
What is a reasonable recruitment ratio?
A reasonable ratio varies depending on various factors, such as industry, role and recruitment strategy. It may also depend on the targeting and selection criteria and the recruiting process stage for which you are calculating the ratio. You may look at your past recruitment cycles and industry standards to find more reasonable ratios. They may help you compare and assess your recruitment strategy.
For example, a 25% applications-to-screening ratio may indicate that the job advertising campaign is successful, but it may also be too broad. With such a high applications-to-screening ratio, you require limiting the number of candidates to select the most talented individuals at later stages. You may wish to change the application screening filters, campaigns or short-listing criteria to a narrow target.
Related: Why Is Human Resources Important To Every Organisation?
What is the recruiting yield pyramid?
The recruitment yield pyramid represents the relationship between the various recruitment ratios. Companies use a recruiting yield pyramid to ensure they attract sufficient numbers of candidates to apply for the open position and shortlist the suitable number of candidates at each recruitment stage. The recruiting yield pyramid can be a mathematical or graphical representation of the recruitment process relationships. Here is an example:
Recruitment leads to invitees: 6 to 1
Invitees to interviews: 4 to 3
Interviews to offers made: 3 to 2
Offers made to offers accepted: 2 to 1
Examples Of Calculating This Ratio
Consider the following two examples for calculating this ratio when hiring new employees and determining whether a stock's dividends justify its price:
Example calculation for recruitment
Here is an example calculation of this ratio for recruitment:
A business wants to determine if recruiting candidates from a specific job board is an effective recruitment method. They can use this type of ratio to see how many candidates who apply for a specific role from that job board are qualified enough to pass the initial screening and qualify for an interview. Over four weeks, they got 280 applications and invited 42 candidates for interviews. Their ratio is:
42/280 = 0.15
This means that around 15% of candidates are qualified enough to get an invitation for the interview.
Related: Recruitment Vs Selection: Definition And Key Differences
Example calculation for finances
Here is an example calculation of this ratio for investment:
An investor is trying to decide whether buying a stock can bring them enough dividends for the investment to be worth it. The respective stock costs ₹100 per share and the total dividend per year is ₹4. According to their investment strategy, a stock producing dividends of at least 3% of its value is worth investing in. The stock's dividend yield is:
4/100 = 0.04
This means that the dividend yield for this stock is 4%, which is much higher than what the investor considers a valuable stock.
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