Common Business Challenges

The cost of Hiring and the
true cost of a Vacancy

The loss of key employees may cost you
more than you think.

Calculating 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. Calculating COV is critical, because organisations are unlikely to place the requisite emphasis on addressing recruitment issues if they are unaware of the negative impact such vacancies may be generating. So many organisations 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. Cost-focused organisations end up seeing a position vacancy as a short-term reduction in expenses; after all, salaries do show up on the balance sheet as an expense (not an investment). That's why it's so critical to demonstrate the business impact of not having a performing employee in key positions.

If you have the time, we strongly recommend that your organisation calculates the actual costs of having a vacancy in key roles. It is important to note that there is no magic or even standardised formula for the calculation of the cost of a vacancy, because the factors that must be considered are largely dependent upon the position, the industry, and the current stage in the product lifecycle.

Therefore following two Calculators take a broad brush view of these costs but a good start for you to measure these two key components - the cost of hiring and the cost of a vacancy.

Cost of DIY Hiring for a Permanent Employee

Based on a study of the actual time and costs involved in an end to end recruitment assignment this calculator excludes any vacancy/opportunity costs and the associated loss of productivity during this process. By using the hiring manager's salary this calculates the actual cost of his/her time plus any associated costs such as advertising for a New Hire and a Replacement Hire.

calculate the cost of a DIY hire

Calculating the cost of a vacancy

Based on the average revenue per employee this calculator takes the company's revenue per employee (which is the company's total revenue divided by the number of employees) and divides that by the number of working days in a year. Note: If you have some position specific data i.e. in the case of the sales or account manger where you know the annual revenue they generate, you should use that data as it will be much more meaningful. This provides you with the average revenue produced by an employee on a daily basis.

Then based on the number of days the role is vacant and the time it takes for a new hire to get up to speed you can estimate the cost to your company of the vacancy. The principal here is that if an employee is not in place, you cannot generate the revenue that that one employee would have generated on average.

calculate the cost of a VACANCY
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