Measuring HR Strategy Success: 5 Essential SME Metrics
Human resources are a crucial component of any business, and small and medium-sized enterprises (SMEs) are no exception. However, with limited resources and budget, SMEs need to be strategic in measuring their HR success to make informed decisions that will impact their overall business long-term performance and profitability. To achieve these outcomes, it is important to measure the success of your HR strategy. This can be done by tracking HR metrics that matter. While there are many HR metrics you can track, not all of them are equally relevant or impactful for SMEs. In this blog, we'll discuss seven HR metrics that matter for SMEs and how to measure them effectively. We will now explore some of the most important HR metrics for SMEs and how to measure them.
It is important to note that we will only explore the basics on formulars and examples as there are variants and complex methods that can be applied to suit larger complex organisations or specific business needs.
1. Employee Turnover Rate
This metric measures the percentage of employees who leave a company during a certain period and it is one of the most important HR metrics to track. High turnover can be a significant drain on SMEs, both in terms of time and resources. It may be an indication of issues with the work environment, leadership, or company culture. According to a study by the Work Institute, the average cost of losing an employee is 33% of their annual salary. In fact, studies show that it can cost up to 200% of an employee's salary to replace them. By tracking the turnover rate, SMEs can identify areas where they need to improve employee retention.
According to the CIPD, the average voluntary turnover rate in the UK was 13.5% in 2021. This turnover rate typically varies by business sectors, size and type of business, job type, e.g., retail, hospitality, engineering, sales etc, and other factors.
To calculate the employee turnover rate, divide the number of employees who left the business during a given period by the average number of employees working in the business during that same period, and then multiply by 100.
For example, if an SME had 50 employees at the beginning of the year and 10 left during the year, the turnover rate would be:
Average headcount - (50 headcount + 40 headcount) ÷ 2 = 45
Turnover rate = (10 leavers / 45 average headcount ) x 100 = 22%
2. Absence Rate
The absenteeism rate measures the percentage of days employees are absent from work due to sickness or other reasons. A high absence rate can be a sign of low morale, burnout, or poor management. According to the CIPD, the average absence rate in the UK was 5.7 days per employee in 2021. To calculate your absenteeism rate, divide the number of days missed by all employees by the total number of working days in the same period and multiply by 100.
Formula: (Number of days absent / Number of work days available) x 100
Example: If an employee was absent for 5 days in a month where there were 20 working days, the absence rate would be (5/20) x 100 = 25%.
Reported sickness absence rates largely vary by business sector, organisational culture, nature of the job and other factors. The ONS reported that in 2022, the UK’s sickness absence rate was 3.7% for part-time workers and 2.4% for full-time workers. Sickness absence is categorised into primary two types: Long-term or Short-term sickness absence. Their calculation and business impact (Financial and otherwise) vary. So also, are regulations, processes, practices and metrics required to effectively manage them.
3. Training & Development ROI
This metrics helps businesses helps businesses understand how much impact investment in employee training programs have on business outcomes.
Investing in employee training and development can have a significant impact on an SME's bottom line. Studies show that companies that invest in employee training and development have higher revenue per employee and higher profit margins than those that do not. By tracking the investment in training and development, SMEs can ensure that they are investing in their employees' skills and abilities.
While the metric definition is clear and easy to understand, measuring it has and still is a challenge due to the difficulty of being able to explicitly assign performance increase to a set of training programmes. Factors such as improved wellbeing, may be responsible for employee performance changes and not just training or the lack of it. Regardless, applying a variation of the Kirk Patrick model can help organisations commence measuring this metric which is essential for managing investment vs employee retention and productivity. According to the CIPD, the average training and development investment per employee in the UK was £386 in 2021.
Formula - Training and development ROI: (Subtract the cost of the training from the benefits gained) and divide by the cost of the training, times 100.
Example: If training investment per employee = £200 and sales increased by £250.
ROI = (250 – 200) X 100 / 200 X 100 = 25%
Formula – cost of training:
Total cost of training and development / Number of employees
Example: If an SME spent £10,000 on training and development for 50 employees, the training and development investment per employee would be £10,000/50 = £200.
4. Revenue per Employee
Revenue per employee is the amount of revenue an SME generates per employee. Alternatively, it measures the potential revenue generated by each employee over a period of time. The factor 'potential' becomes important because not all employees or departments function as revenue generators and this factor must be considered when reviewing this metric.
The metric is essential for SMEs because it can flag the need for changes to productivity, efficiency, increase to revenue generation, cost reduction, workforce changes, reorganisation etc.
According to Statista, the average revenue per employee in the UK was £165,214 in 2020.
Formula: Total revenue / Number of employees
Example: If an SME generated £500,000 in revenue with 10 employees, the revenue per employee would be £500,000/10 = £50,000.
5. Employee Satisfaction Rate
Employee engagement or satisfaction rate is the percentage of employees who report being satisfied with their job and work environment. It is an essential metric for SMEs because it can impact employee retention and productivity. This is a critical HR metric for SMEs as engaged employees are more productive, more likely to stay with the company, and more likely to recommend the company to others. On the other hand, disengaged employees can be a drain on morale and productivity. By tracking the employee engagement rate, SMEs can identify areas where they need to improve employee satisfaction.
According to a survey by Perkbox, the average employee satisfaction rate in the UK was 58% in 2021. There are many ways to measure employee engagement, but one common method is to use an employee engagement survey or survey tool. This can include questions about job satisfaction, communication, leadership, and more. The results can then be used to identify areas where the company needs to improve.
Typical Formula: Number of satisfied employees / Total number of employees
In conclusion, tracking HR metrics is essential for any business and particularly, SMEs, to ensure that their HR strategy is effective and aligned with their business goals, identify areas needing change and take the necessary take action to continually achieve success.