The Painful Cost Of Vacancies, and How to Calculate Yours

The economic cost of vacant positions in a company is the opportunity cost of unfilled positions. It is the difference between benefits and payroll savings, less hard and soft costs — for example, loss of revenue, productivity, and employee morale — from not having that employee. This is one metric recruiters use to help them prioritise hiring.

The cost of a vacancy (COV) can vary depending on the position, industry and the current phase of the company’s development. There is no standardised formula for calculating COV, but one possible way is to estimate the average employee revenue, multiply it by a predetermined multiplier based on the role’s impact, and then multiply this by the number of days the position remains unfilled.

For example, if a company has an annual income of £20 million and 50 employees, the average employee revenue is £400,000. If a high-impact position such as a software developer has a multiplier of 2, and the position remains vacant for 73 days, the COV would be:

£400,000 x 2 x 73 / 365 = £160,274

This means that during the period that the vacancy has remained unfilled, company has lost £160,274 in revenue. Of course, this does not include other costs such as overtime pay, hiring costs, training costs, or reduced quality or customer satisfaction.

How do you determine the right multiplier to apply to your vacancy? Here we have four key factors that affect your calculations.

The amount of money that each employee generates above their salary.

This can be calculated by taking the total cost of the department or company’s payroll for one year and dividing it by the total number of employees. Another way of considering this is by dividing the company’s annual income by the total number of employees.

The industry and the current stage in the company’s development.

For example, in industries where time to market is a key factor that drives corporate success, such as the technology or biotechnology markets, the multiplier may be higher than in industries where time to market is less critical, such as manufacturing or retail.

The multiplier effect of spending and saving within an economy.

This is the relationship between increased revenues and additional cashflow, such as new income streams and expenditure. The multiplier effect arises because one agent’s spending is another agent’s income. When a spending project creates new jobs for example, this creates extra injections of income and demand into a company’s cashflow.

The position’s impact on the organisation’s output, revenue, or profit.

For example, a high-impact position such as a software developer or a salesperson may have a higher multiplier than a low-impact position such as a junior-level coordinator or an administrative assistant.

The amount of money that each employee generates above their salary.

This can be calculated by taking the total cost of the department or company’s payroll for one year and dividing it by the total number of employees. Another way of considering this is by dividing the company’s annual income by the total number of employees.

The industry and the current stage in the company’s development.

For example, in industries where time to market is a key factor that drives corporate success, such as the technology or biotechnology markets, the multiplier may be higher than in industries where time to market is less critical, such as manufacturing or retail.

The multiplier effect of spending and saving within an economy.

This is the relationship between increased revenues and additional cashflow, such as new income streams and expenditure. The multiplier effect arises because one agent’s spending is another agent’s income. When a spending project creates new jobs for example, this creates extra injections of income and demand into a company’s cashflow.

The position’s impact on the organisation’s output, revenue, or profit.

For example, a high-impact position such as a software developer or a salesperson may have a higher multiplier than a low-impact position such as a junior-level coordinator or an administrative assistant.

Here are some examples of positions that if left unfilled have the greatest cost to your organisation

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+44 7977 988 000

neil.burns@georgejamesltd.com

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Contact

Hotley Bottom Barn,
Hotley Bottom Lane,
Prestwood,
HP16 9PL

+44 7977 988 000

neil.burns@georgejamesltd.com

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