Have you ever considered what the costs are of NOT filling your position?  Especially the ones that are non–revenue producing roles?  Often, we think if we don’t fill non-revenue producing positions, we are saving money.  Are we really?  Cost of vacancy (COV) for non-revenue roles are not as easy to measure or predictable as sales positions, project deadlines, or productivity.   

Grab a piece of paper and let’s do some calculating (Example calculations shown in the table below):

Average Employee Revenue:

First we need to calculate the average employee revenue, the amount of revenue that each employee earns for a business. We do this by dividing the annual revenue by the number of employees. Next we take that number divided by 260 working hours a year to get the daily average employee revenue.

• (Annual revenue) / (Number of EE) = Average EE revenue

• (Average EE revenue) / (260 working days/year) = Daily EE revenue
  *260 working days per year is calculated by dividing the number of working hours per year (2,080 hours) by the number of working hours per day (8 hours). (2,080 hours/year) / (8 hours/day) = 260 days/year.

Role Specific Revenue : 

Next we figure out the role specific revenue. This number helps quantify the revenue based on the role’s impact in the company. This is set by per-determined multipliers. Check with your finance department to see where your open position falls within these three.

• (Avg. daily EE revenue) x (Revenue-impact multiplier) = Daily role-specific revenue
  Predetermined Multipliers:
  1 = Entry level or junior level contributor
  2 = High Impact roles within shared services:  HR, Legal, Finance, IT, Marketing
  3 = Executive or Leadership Roles

Revenue Lost to the Vacant Role:

Multiply the daily role-specific revenue by the estimated time-to-fill, which is the time elapsed between the first job posting and having an offer accepted. See the chart to the right for the average time it takes to fill an open position by industry.

• (Daily role-specific revenue) x (Estimated time-to-fill) = Revenue lost to vacant role
  SHRM estimates the average time to fill as 42 days. 

Industry Specific Estimates

Payroll and Benefit Savings:

Having an open position doesn’t just mean a loss of revenue. The company is also saving on the cost of payroll and benefits. We will figure that number out now. First calculate the cost of benefits by taking the employee salary multiplied by .314 (According to the Bureau of Labor Statistics, benefits cost 31.4% of annual salary). Take the cost of benefits and add it to the salary, that’s the cost of employee.

• (EE salary) x (.314) = Cost of benefits

• (EE salary) + (Cost of benefits) = Cost of employee 

Next, take the cost of employee and divide it by 260 working days a year to find out the daily cost of employee. After that, multiply the daily cost of employee by the estimated time-to-fill to get the payroll and benefits savings.

• (Cost of employee) / 260 = Daily cost of EE

• (Daily cost of EE) x (Estimated time-to-fill) = Payroll and benefits savings

Conclusion

Finally we are going to subtract the revenue lost to vacant role from payroll and benefits savings to get the cost of vacancy. Which in this example would be $25,073.15. In addition, there are costs that are not as tangible, when leaving a position unfilled that should be considered:

• Employee morale may take a hit when existing employees are taking on more work, especially if continues for a long period of time.

• Employees working longer and more hours can also lead to increased absences and even more accidents on the job.

• Customer relationships and increased frustration may become a detriment because of lack of staffing. Your company may never know how many customers walked away due to increased wait times or late or no responses.

• If your company takes it time or does not hire right away, there could be damage to your brand. Candidates may get frustrated, leave bad reviews, and current employees may also leave bad reviews or begin to speak negatively about your company, making it more difficult to hire. Negative online reviews are difficult to combat, especially if there aren’t enough positive ones to outweigh them.

Skywalk Group can help you get your open roles filled and find someone that will fit in with your company culture. With our signature on-demand recruiting solution OnRecruit®, we can help get your positions filled with a set hourly rate no matter how many there are to fill.

By: Jenetta Williams

Builtin.com