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Leaving a position in a company unfilled for an extended period of time inevitably causes problems. It doesn’t take long for frustrations to arise due to increasingly unmanageable workloads. As an IT recruitment agency, we’ve heard our fair share of hiring horror stories.
As well as making life more difficult for existing staff, leaving positions unfilled for long stretches of time limits growth and costs the business money. According to Glassdoor, unfilled jobs in the US tech market alone add up to a value of $20.1 billion. The situation isn’t much better in the UK. Business are unable to find the skilled workers they sorely need and the digital skills gap now costs the UK economy £63 billion a year.
Why you should calculate costs
After being given the go-ahead to make a new hire, companies need to move quickly to minimise losses. But often this doesn’t happen as hiring managers busy with myriad other responsibilities are slow to progress through the hiring process.
As the real cost of an unfilled position isn’t immediately apparent, it is easy to get complacent. But for everyday that it’s put off, more money goes down the drain. Bringing these costs into clearer focus for yourself and other members of your team can provide the motivation necessary to prioritise growing your business more quickly and efficiently.
Hiring managers should be able to effectively communicate a sense of urgency when it comes to unfilled positions. Each hour that a chair remains empty, customers go uncalled, questions are left unanswered, orders go untaken, and new efficiencies go undiscovered.
There are so many intangibles associated with true cost calculation, it is impossible to assign and exact cost of the vacancy. However, by assuming that each current employee has a positive revenue impact (which they should), it makes it possible to calculate the average minimum baseline cost of each open position.
Quantifying lost revenue
Contributing to an article on Dice, Amara Miller, senior technical recruiter for Silicon Graphics International, shared how she works out lost revenue. Dividing the company’s total revenue by the number of employees gives a baseline revenue figure per employee. This number can then be divided by the number of working days per year (220) to calculate daily revenue loss.
Revenue losses are likely to be greater for employees in high-impact positions such as product managers, customer support analysts and software engineers. Using a simple salary multiplier between one and three is the easiest way to account for additional lost revenue from missing employees in revenue-driving roles.
To quantify what each vacant position is costing your business, use this equation:
(Annual revenue / number of employees) / 220 working days X 1,2, or 3 multiplier
It’s easy to see the money lost on tangible things like unrented rooms, unfilled airline seats or unsold product. Although less obvious at first glance, there is no denying that open vacancies represent a similar lost revenue opportunity.
Set a limit on acceptable revenue loss
Now that you know what the vacancy is costing your business each day, you should decide an acceptable level of future loss. Having this figure to hand will enable you to work out how quickly the position needs to be filled.
For example if the calculation above revealed that your daily revenue loss is £200 and a typical recruitment fee is £8000 you might set that as an acceptable total revenue loss. Working to this limit, it gives you 40 days (8000 / 200 = 40) to source the right candidates, progress through a number of interview stages and get an offer out to the right person
If your business lacks the internal resources to complete the hiring process in 40 days, then it may be worth outsourcing the most time-consuming parts of the process to an agency that can do them quicker.
Recruiting spend vs Cost of open position
Running the numbers hammers home the fact that revenue losses add up quickly. In most instances, companies don’t have these figures to hand when a position is open. But they certainly build a strong case against leaving it open too long.
Companies should take the time to weigh up their options. Is investing more in recruitment likely to get the position filled faster? If the increased spend on recruitment is less than the cost of leaving the position open then it makes logical sense to make the investment.
It’s very easy to overlook the true value of investing in the right recruitment solution. But in this situation, time really is money.
Finding the recruitment solution that works best for your business not only brings in quality candidates when you need them, but it improves your company’s bottom-line in the process.