Today's market for talent is tight as the unemployment rate is at an all-time low of 3.9%. These numbers require organizations to be great at both recruiting and retaining talent. Many of our clients would agree: vacant positions impact their bottom line. While it can be simple to calculate the average cost of a vacant position by day or week, what can be more challenging is quantifying the value each employee has at an individual level. One thing is certain: unfilled positions take their toll in the form of fatigued employees, dissatisfied clients, and lost revenue. Let's take a closer look.
One widely-used formula for calculating the loss of revenue associated with an unfilled position is:
For example, let’s say your organization has 50 employees and a gross annual revenue of 5 million. Divide those numbers by 252 working days in 2020, and the daily loss ends up being around $396. A Deloitte study found that it takes around 70-90 days to fill skilled production worker positions to highly skilled/specialized positions. Let’s split the difference and do the math: (396*80), that 80-day vacancy for just one unfilled position will result in a little over $29,000 revenue loss. While these numbers can get larger with more amount of vacancies, This formula can give us a basic understanding of the revenue loss associated with an unfilled position, but does not account for certain variables. For instance, what about vacancies in positions that are more focused on driving revenue and developing business, such as a sales position?
One basic formula you can use to determine the loss of revenue due to a sales vacancy is:
Let's move beyond formulas and past the numbers. There are skills and qualities individual employees bring to the table for your organization that can act as multipliers in the equations above. The exact cost can be hard to calculate, but the impact is real and must be considered. Such unique costs can include:
- Individual Employee Skillsets and Capabilities
- Organizational Investment in Training
- Employee Influence on Other Employees
- Strong Employee Relationships with Clients
In addition, if an employee takes their skills to a competitor the depletion is compounded. Consider for a moment an above-average salesperson leaving to work for a direct competitor. They take with them the value of at least a percentage of their book of business, their knowledge of your unique processes, their experience across industries and verticals and their contact list of your partners, vendors, and other employees. The damage can be staggering.
Today's employers must also consider the repercussions of employee turnover from a future recruitment perspective. For instance, one of the first things that happens when an employee leaves is that other employees must fill the gap left by their colleagues. This can lead to added stress, more work, tired employees, and diminished company culture. If the employee was a solid, respected leader, then the loss can result in disillusioned, unfocused teams. The company's brand as an employer-of-choice will also be impaired as job vacancies continue or multiply.
Finally, it cannot be denied that job vacancies lead to a breakdown in communication between customers, partners, and team members. The result? Confusion, unhappy employees, angry customers, and lost revenue to name a few. Consider again the example of the salesperson who leaves to work for a competitor. If someone from your team doesn't bridge the gap and stay in touch with the clients in their book of business, they run the risk of leaving--and running right into the arms of your competition.
So, before you justify an unfilled position with the recovered costs of salary and benefits, think for a moment what the vacancy might be costing you in the long run. Whether you realize it or not, the risks probably far outweigh the rewards.