Cost of Vacancy, Because Every Second Counts
People create value in an organization. Even a person without a finance background understands that without any employees, your revenue drops to zero. Investing in finding the best talent drives the success of your organization.
Vacant positions are costing your company money. Are you surprised? You aren’t alone. Let us figure out exactly how much you’re losing! Calculating the cost of vacancy (COV) helps you accomplish this. Then we can fix it! We’ll help you determine the financial impact of a talent shortage, from the time talent is needed until the time you recruit and fill the position.
Vacancies create a gap in productivity, weaker employee morale, and often burnout for existing employees. This reduces your bottom line, both short-term and long-term.
CERS Offers a Solution
We specialize in talent delivery solutions that significantly reduce the time it takes to find, attract, and deliver the talent your organization needs to succeed. We’ll review the cost of vacancy and its financial impact, including the money lost when positions take a long time to fill. Plus, we’ll figure out the costs associated with employee turnover.
Calculating Cost of Vacancy
Unfilled positions translate to higher costs for your organization. Nationwide studies show companies spend an average of 51 to 72 days to fill open positions. This is simply too long. In today’s business environment, organizations need to maintain and grow their competitive advantage. Without the right talent, or too many vacancies, this is impossible to accomplish in business today.
There isn’t a magic formula (or even a standard formula) for calculating the cost of vacancy. There are, however, several formulas that are adaptable for each organization. We recommend the early involvement of your finance department, an approach that adds credibility to your calculations and eliminates internal doubt and resistance that may interfere with your efforts.
We’ve put together a brief explanation of basic cost of vacancy formulas and provided access to calculators for your convenience. This helps determine the best method for your company.
Click a Link Below to Calculate
- Average Revenue Lost Per Employee
If you don’t have position-specific data available, this simple formula allows you to determine the revenue your company is failing to generate due to a vacant position.
- Simple Salary Multiplier
This calculation doesn’t require your company’s specific information. Instead, it estimates each employee’s value as a multiplier of their salary. You can rely on a study conducted by Harvard University that indicates an individual’s value is between one and three times their salary. Some experts have found three times the salary to be most accurate. However, you can utilize one or two times a salary without any argument. If you go above the 2x figure, CERS suggests feedback from your finance department to gain creditability.
- Direct-Revenue Lost
For revenue-generating positions, such as Sales or Business Development with specific quotas, this formula helps estimate how the vacancy affects your bottom line.
- Budget Expenditure per Employee
This formula is ideal for support positions, such as clerical or administrative, as their productivity contributions are difficult to directly measure.
Impact of a Vacant Position
Vacancies have a tremendous impact on your business. In fact, most companies don’t realize the serious effects and how they impact your bottom line – and even threaten your position in the market. Below are some of the areas to consider when reviewing the impact of vacancies in your business.
The Ripple Effect
Vacancies, especially excessive ones, can send a message to your customers and suppliers that your organization is weak. This creates a period of confusion; suppliers and customers simply don’t know who to contact, and the stability of the relationship can turn questionable. Even worse, the potential of errors resulting from vacancies might lead to lower sales volume, loss of customers, and loss of market share. Plus, here’s something else to consider: coverage of vacancy by another salesperson, service representative, or account manager gives customers an excuse to look for other suppliers. This puts you at risk for losing valuable market share. Below are some vulnerable areas when your company is facing vacancies.
Impact on your Team
Vacancies don’t just affect your bottom line; they affect staff, too. Teams can experience disruption, resulting from a loss of productivity, loss of experience, loss of leadership, and even loss of skill from the employee who left. Plus, vacancies might negatively affect the generation of new ideas. Co-workers feel frustrated and overworked, potentially increasing errors and decreasing work quality. Even worse, managers may become reluctant to terminate poor performing employees. Vacancies coupled with poor performance are a recipe that can cripple your team.
Competitive Advantage, Culture and Value Impact
As business picks up, vacancies can cause panic and encourage the quick hiring of poor performers. Once a team is saddled with a large number of poor performers, they lose the ability to attract new top performers – the “Difference Makers.” That’s why you need hiring options to create a long-term recruiting brand. Plus, vacancies might send a message to your competitors that your organization is vulnerable. This can lead to increased pressure from your competition.
Recruiting and your Image
A large number of vacancies send the wrong message to future recruits. They think your organization isn’t retaining their top-talent. As a result, your company’s ability to engage and attract the best talent is negatively affected. This also sends a message to existing employees that your organization may be headed downhill. So now your employees (even the best performers) have a reason to passively seek new employment opportunities. Making matters worse, once competitors and recruiters think your organization is weak…they might become bolder about approaching your employees about jobs.
Increased Management Time and Effort
Teams with vacancies become a drain on your management. They require more maintenance and attention. As a result, management isn’t able to spend time on strategic management issues like positioning the department for a market shift or developing other teams. Your organization faces lost opportunity costs. These are things managers could have accomplished if they weren’t carrying the load of the vacancy. Plus, if a vacancy is created by top management decisions, like hiring or budget freezes, managers might lose hope. Morale is negatively affected, and you’re at risk for higher management turnover rate. Management vacancies create an entirely new set of problems; resulting in a multiplier effect on productivity and proactive recruitment for top talent.
Avoid the Pitfalls
At CERS, we understand the challenges companies face in today’s quickly evolving business economy. We partner with your company to optimize how you retain and hire top talent across all departments. Our solutions and consulting services are designed to provide an immediate return on investment – in either productivity or profitability…and often both.
Resources to Help Your Recruiting Efforts
Often times, interviewing and hiring employees accounts for less than 1% of the average leader’s job duties.
The Employee Recruitment and Interviewing process appears simple: a vacancy arises in a company, so the role is advertised, and a pool of qualified job candidates are reviewed and selected for interviews and otherwise assessed to determine a proper match, resulting in the successful candidate being selected and offered the position.
While true, there are many factors that can affect the hiring process. Interviewing and hiring employees is clearly one of the most important decisions a leader can make. After all, your team, department, company, and stakeholders are all affected by each and every employee’s performance and attitude.
At CERS, we understand that “A Company’s Foundation is a Solid Staff.” A bad hiring decision can spell disaster. Turnover, morale, lost productivity, and unrealized revenue are but a few of the pitfalls of making the wrong decision – or no decision at all.
Please enjoy our Client Resource section where you can learn how much that open position is really costing you, or see how much turnover and under performance are affecting your bottom line.