What is the Cost of an Open Position at your Company?
October 2, 2021
Courtesy of Ahola Corporation
You may be losing money if you have an unfilled position at your company, and you may take a serious financial hit if you leave it unfilled. Read more for an analysis of the cost of an employee vacancy.
How much money is lost when you leave a position vacant? There’s a financial impact to keeping a role open. Efficient, productive firms have talent acquisition and retention plans to quickly fill the pipeline with great candidates. Without those processes in place, however, recruiting, screening and acquiring new staff can be costly and time-consuming.
The cost of a vacancy is not just theoretical; it has an impact. If you wait too long to start recruiting and hiring, you risk losing the money you had budgeted to fund the position. This causes a trickle-down effect on the rest of your company. So how can you accurately measure the money a vacancy costs you through lost productivity, employee engagement and team morale?
Pinning down the cost of a vacancy in dollars and cents can help you explain to leadership what happens to your department when a crucial role goes unfilled. That epiphany will get you a seat at the strategy table for recruiting.
How do you calculate the cost of a vacancy?
The cost of a vacancy is relatively straightforward to calculate if it’s a revenue-generating position like a sales role — you determine the quota that’s not being met. But when trying to determine the cost of a nonrevenue-generating vacancy, the loss is harder to quantify. How can you show how productivity, team morale and project deadlines take a hit and cost your firm big bucks?
An article in the online community Built In offers suggestions on how to calculate the cost of a vacancy. Start by determining the average revenue generated by an employee at your company. You can do this by dividing company annual revenue by the number of employees. Multiply that number by 260, which is the average number of working days a year.
To calculate the specific role’s revenue, multiply the daily salary for the role by one for an entry-level role, two for a high-impact role like a sales or tech employee or a product developer, and three for an executive or leadership role. You lose much more revenue if a software developer who had significant impact on the company’s product is no longer there.
Once you have calculated how much revenue you’re losing, you have to take into consideration how long it will take to fill the role. Consider the time from the day you first post the job ad to the day the new candidate accepts your job offer. The answer will vary depending on the role.
Of course, while the position is open, the company is saving payroll and benefit costs. You will have to calculate how much you’re saving and subtract the revenue lost from payroll and benefit savings.
And there’s more …
This process will give you only the roughest possible estimate. The actual cost of vacancy will account for productivity loss, project delays, declining employee morale and employee burnout due to increased workloads. The daily loss of revenue incurred by an open position includes the cost of a replacement, recruiting fees, employee training and onboarding costs, and severance pay. You may see an open position as a chance to cut spending and readjust responsibilities, but there’s an effect on the remaining employees: the added workload and stresses as well as the impact on time to market and the quality of your product.