Vacancies aren’t always planned.
Where employee leave and hiring matters are concerned, vacant positions cannot always be foreseen. Potentially, any business could have a vacant position at any time. This could be because an employee earns a promotion, takes a job elsewhere, is terminated, or any other number of reasons.
Despite no longer paying the employee’s salary, the vacant position they leave behind doesn’t necessarily mean the company is saving money. Vacant positions can affect the business—in terms of real dollars, team morale, customer experience, and more.
In this post, we outline the true impact of a vacant position, and the effect it can have on other areas of a business.
What Are The Cons Of Open Positions At Your Company?
Vacant position costs can vary depending on a variety of factors. In general, they can be broken down into three primary categories, which we’ll cover here.
1. The hard costs of a vacant position
When you have a job vacancy, the workload of the individual who left doesn’t go away. It must still be accounted for in some way. This can be done in a number of ways. Either by looking for temporary staffing services, using a contract employee, paying other employees overtime to help make up the work, or else, letting the work go unfinished.
There also is the concern of employee turnover costs, which include the additional expenses to source, attract and hire an employee to fill your vacant position. These costs include every aspect of hiring: marketing the role, onboarding, training, ramp-up time to full productivity, and business error rates resulting from a new hire.
2. The soft costs of a vacant position
Lost productivity is the most obvious example of a soft vacancy cost, but there are quite a few others. Additional vacant position costs that fall within this category include the negative impacts to employee morale, reduced quality of customer service, and harm to your company’s image or reputation in the eyes of customers and competitors from having a position sit open.
3. Lost opportunities that result from a vacant position
Finally, we must consider the lost growth opportunities that come from not having a person in a particular role. When productivity is down, it affects your bottom line in several ways.
Not only does it mean that you’re potentially paying extra money in overtime costs, but you’re also missing out on business and product development opportunities that you can’t take advantage of or explore with strained operations. This, in turn, thwarts your business’ growth and stifles its ability to scale.
What Does COV Stand For?
The cost of vacancy, or COV, is an important metric we can use to determine the actual business impact of open positions in the form of dollars and cents. COV takes into consideration not only business impacts like the cost of lost productivity, but the gap between the time talent is needed and the time it takes the recruiting team to supply said talent.
How To Calculate Vacancy Costs For Your Business
The longer a position remains open, the more costly that job vacancy becomes. There are a few widely accepted methods we can use to evaluate the cost of a vacancy. For these examples, we’ll assume a hypothetical role with a salary of $50,000.
Simple salary multiplier
Research has shown that an average employee’s value to the organization is between one and three times their annual salary. Let’s take the middle ground and say that $50,000 employee brings the organization $100,000 in value every year.
If we divide their value by the 260—the average number of working days per year—we get a value of $384.62 per workday. That’s how much we’re losing in value for every day the position sits open. If it’s vacant for 35 days, which is roughly how much time it takes the average company to fill a position, that’s a total vacancy cost of $13,461.
This COV method works well for revenue-generating jobs like salespeople or loan officers. The principle here is that if there is a vacant job in a revenue-generating position, that revenue will be lost if no one is in that slot.
You can probably estimate the average yearly revenue generated by any given position (look at your sales targets for guidance on this). Let’s say the average outside sales rep generates $150,000 in annual revenue for your company. If we divide this by those 260 working days in a year, that’s $596.92 per day, or $20,192 total revenue lost for a 35-day vacancy.
This method can also be applied to non-sales roles by zooming out and looking at the average revenue generated by every employee. To get to this number, you’d divide your total profits for the year by your total number of employees. This gives you a ballpark of how your average worker translates in terms of revenue, which you can then use to calculate the lost revenue per day.
Budget expenditure lost per employee
We have yet another way to look at vacancy costs if we examine departmental budgets. The principle with this method is that if you don’t have an employee on the job every day, they can’t produce the value reflected in the budget allocated to them.
To use this method, we take a department’s annual budget and divide it by the number of employees in the department. This gives us the average budget expenditure per employee.
So, let’s say your marketing department has a total annual budget of $1 million and is staffed by 8 people. If we divide $1 million by 8, we find that each of those employees has a budget value of $125,000 to the department.
Once again, using 260 working days in a year, we can calculate that the lost budget value for every day an employee is not in a role is $480.76. If the role sits vacant for 35 days, that’s a total cost of $16,826.
Using the hypothetical examples we outlined above, we can see that our COV is anywhere from $380 to $600 per day—quite a hefty sum.
Every additional day without a person in the role only multiplies the cost.
How Time And Position Affects Job Vacancy Costs
Thus far, we’ve been using a standard time to hire, which is typically anywhere between four and six weeks depending on the industry. But some industries and roles take much longer to hire for, and this impacts your COV. According to research¹ from Deloitte, it can take 70 days to hire skilled production workers and more than 90 days to recruit highly skilled workers like engineers, researchers, and scientists.
Knowing that a $50,000 position that sits open for a month can result in more than $20,000 in lost revenue is rough. Now, imagine how much more it will cost your business to have a vacant scientist or engineering position that has a salary surpassing $100,000 and a high contribution to the organization’s output. You’re talking about a significant amount of potential lost productivity and revenue.
In short, the more specialized or advanced the position, the more it costs you on average to leave that position vacant.
Productivity cost considerations
Not all vacancies result in a total loss of productivity—if you hire a temp to tackle some of the work, for example, or split it among other employees. However, you’ll need to consider the implications of these options as well.
A temporary worker will typically have lower productivity than someone who’s been given time to fully train and onboard into a role. If a manager is having to absorb some of the additional work, this means some of their time is taken away from higher-priority tasks, which also comes with a cost. Finally, consider the cost of any overtime pay if other regular employees are being tapped to tackle the additional workload.
Related Blog Post: How To Reduce Your Average Time To Hire
How A Recruiting And Staffing Agency Can Reduce The Cost Of A Vacancy
To minimize vacancy costs as much as possible, some companies choose to work with a headhunter or a professional recruiting firm. A staffing agency can help businesses of any size meet their staffing needs. This means hiring managers get quicker access to skilled workers. Working with a staffing agency can reduce your time to hire, cost per hire, and other key recruiting metrics that impact the cost of recruiting.
4 Corner Resources is an award-winning staffing agency headquartered in Orlando, Florida. We cover almost all verticals and have access to top talent on a national-scale. Our team provides a variety of direct-hire, contract-to-hire, remote staffing, and temporary staffing solutions. Whether you’re a small business looking to make strategic hires to help you grow or an enterprise-level organization needing to fill high-volume roles, we have a staffing solution to suit.
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