July 22, 2021
In every workplace, talent comes and goes and it’s up to the recruiter to make sure open positions don’t stay vacant too long. Here is where there is often a disconnect between recruiters and upper management. It’s a common misconception that an unfilled position means you are saving money. No salary out means more money in the bank, right? Well, not really…
There are a lot of factors that play into the costs of an unfilled position, or Cost of Vacancy (COV). We’ve broken them down for you below!
Understanding COV and being able to communicate its significance to an organization’s bottom line is essential for recruiters when it comes time to articulate the importance of an effective recruitment strategy to upper management.
Even if math isn’t your favorite subject, these straightforward COV calculations will equip you with tangible business metrics that you can use as leverage for executive support. There are several ways to calculate COV and which metric, or combination of metrics, you choose to utilize will depend on the type of organization you work for and unfilled position you’re looking to fill.
To determine the direct costs of an unfilled position, first calculate the position’s salary and benefit savings. Then subtract the cost of temporary labor and the overtime pay existing employees are taking on to manage the extra workload.
Step 1: (Position’s Salary / 261 working days) x Average Days to Hire = Salary Savings
Step 2: Position’s Salary x 30% = Benefit Savings*
Step 3: Salary Savings + Benefit savings – Cost of Temporary Labor and Overtime
* Benefit costs typically cost 30% of an employee’s salary. While we are using industry standards and averages, your calculations will be more exact with company data.
Average Salary in the U.S.: $106,561
Average Days to Hire: 35
Average Working Hours a day: 8
Step 1: ($106,561 / 261) x 35 = $14,289.79
Step 2: Position’s Salary x 30% = Benefit Savings*
Step 3: $14,289.79 + $4,286.94 - ($140* x 8 x 35) = -$20,623.27
* Freelance developers’ rates (and any contracted role) will vary depending on the scale and complexity of the projects they’re tasked with and their seniority level ($25 - $300/hr range). $140 is an average.
The COV of an unfilled software engineer position for 35 days is $20,623.27 in this example. That’s a lot of incentive to fill the role!
This model works for determining the COV for revenue generating positions like salespeople. All employees, however, contribute to an organization’s overall revenue. When any team is short staffed, customer service usually suffers which has an impact on customer satisfaction and other key performance metrics.
You can estimate the average revenue for a certain position (if you have those numbers) or zoom out to the entire employee population using the below Average Employee Model calculation.
Step 1*: (Annual Revenue / # of employees) = Average Employee Revenue
Step 2: Average Employee Revenue / 261 working days = Daily Average Employee Revenue
Step 3: Daily Average Employee Revenue x Average Days to Hire = COV or Potential Revenue Loss
* When using the Average Employee Model, you can use a simple multiplier in Step 1 for roles deemed to be higher revenue drivers but without their own specific revenue numbers like sales roles. For example, a customer success analyst might get 1X, Software Engineer 2X, and a Product Manager 3X.
Average Company Revenue.: $20,000,000
Average Days to Hire: 30
Number of Employees: 150
Step 1: ($20,000,000 / 150) x 1 = $133,333.33
Step 2: $133,333.33 / 261 working days = $510.85
Step 3: $510.85 x 30 = $15,325.67
Your open Customer Success Analyst position is costing your company $510.85 in revenue a day. That’s $15,325.67 a month!
The longer a role is open, the more money, time, and effort you’ll spend marketing the open position. The cost it takes to convert a job seeker into an applicant (cost per applicant) is at an all-time high at an average of $19.
Once an applicant applies you also have to consider the cost of your applicant tracking system, assessment software, and any travel expenses for interviews you may cover for candidates. These costs are minor in comparison to direct costs and loss of revenue but depending on how many open positions you have at your organization, they can add up quickly. You can consider using an AP automation system to keep track of the different categories of spending.
Unfilled positions create costs that are hard to measure as well. Vacancies impact overall productivity, employee engagement, and team morale. Nine times out of ten, temporary labor won’t produce the same quality of work as a full-time employee. If other employees are taking on extra work, this can lead to burnout which negatively affects team morale and in some cases, can lead to more vacancies.
It’s also difficult to measure opportunity losses inherent with vacant positions. You never know how many new customers could have been captured, projects completed, etc. if that position was filled. Additionally, the more specialized or advanced the position, the more potential opportunities your organization misses as the role stays empty.
Whether you use calculations with hard numbers or a summary of soft costs, COV Stats should be customized for your company and the messaging you’re trying to get across to management.
These Cost of Vacancy statistics aren’t meant to scare you! Remember, rushing and hiring just anyone to fill a roll can be just as costly a mistake! However, there are ways to hire faster and smarter without sacrificing the quality of your candidates. Automated sourcing tools like Fetcher are here to save you time and money! With Fetcher, our AI sources top candidates for you so you can focus on more important aspects of your job, like candidate engagement and team collaboration.
As a recruiter, make sure leadership understands how much money unfilled positions are costing the company each month. They’ll quickly realize recruitment is essential to larger strategic conversations and will grant you more support.
Check out our other blog posts for more talent acquisition tips and insights into recruiting trends.
At Fetcher, our mission is to introduce companies to the people who will help them change the world. Our full-service, recruiting automation platform automates those repetitive, top-of-funnel tasks, so you can focus more on candidate engagement & team collaboration. Simplify Sourcing. Optimize Outreach. Hire Top Talent. Learn more at fetcher.ai.