How Much Does That Vacant Position Cost You?

The average in-house recruitment cost of filling a vacancy, using internal or external recruitment methods is reported by Monster.com to be around $9000. And for an outside agency you should expect recruiting fess anywhere between 15 and 25%, depending on the nature of your engagement with a recruiting firm, and the volume of hiring you will be doing with them - with an average fee of $16,602 as reported by Bullhorn’s North American Staffing and Recruiting Trends. Pretty sound benchmark numbers for the cost of sourcing, evaluating and filling a vacancy.

But what about the cost to your company while that position is vacant?

The cost of a vacancy (COV) is a critical activity, one that’s necessary to determine the actual business impact of talent shortages that result from a gap between the time talent is needed and the time required by the recruiting function to supply such talent. Many organizations these days have become so laser-focused on cost containment that they often overlook the possible longer-term detrimental impacts their actions regarding talent may have. This is especially true in organizations where the HR budget is controlled by a CFO who continues to see the function largely as an administrative one. Cost-focused organizations end up seeing a position vacancy as a short-term reduction in expenses - the is no salary to pay.

Simple metrics to use in measuring COV:

  1. Salary multiplier of revenue- total revenue divided by the average employee salary.

  2. Simple salary multiplier - use a 1x salary multiplier (a Harvard study found that it was three times a person’s salary, which many analysts have found to be an accurate estimate).

  3. Budget expenditure per employee that is lost - A department’s annual budget divided by the number of employees in the department.

Each of the above metrics can be easily converted to a daily number by dividing by 220. Using salary multiplier as the metric - for a $75K annual position the daily lost value of the open position is $218, meaning that each day the position goes unfilled costs $218 -  over $1000 week.

There are also many other drags on productivity and organizational effectiveness resulting from a vacancy - a few of which that impact management time and effort are:

  • Vacancies require higher maintenance and more management attention.
  • Managers skip their normal management planning and responsibilities in order to fill in for the vacancies.

  • Opportunity costs for things a manager or co-workers could have done if they didn’t have to carry the extra load of filling in for a vacancy.

Vacancies cost an organization - accelerating the recruiting and hiring process will result in real bottomline impact.