As human capital leaders we spend our days hiring, engaging, training, strategizing and supporting the business interests of the larger organization. We focus on the people who are directly responsible for the success of the company. To help our organizations understand our value, there are a number of widely accepted HR and recruiting metrics that we, and the bosses, use to make sense of what we do and put a dollar figure on our efforts. We focus a lot on HR and recruiting metrics like turnover, cost per hire and quality of hire, but I think we are looking at it from the wrong perspective. There’s a bigger picture that we’re missing, and I think that focusing our efforts not just on the cost of hire or quality of hire but the cost of vacancy will help make things a bit clearer.
What is cost of vacancy?
Cost of vacancy is the dollar figure that having an open position is costing your company in revenue. The number, like quality of hire, is hard to calculate because revenue is sometimes hard to realize, but it’s worthwhile to use this as a more comprehensive measurement of the value of human capital. What makes cost of vacancy so much more valuable to know is that it combines several of the key measures we often look at, with the most basic being lost revenue.
It’s the only way to measure the total cost of an open position and should be considered in all of our business forecasts, changes and plans for short term, as well as long-term growth.
Sales and beyond
Cost of vacancy isn’t just limited to income-generating positions like sales or production-focused employee jobs. There’s a cost of vacancy for every single position in one way or another. For instance, cost of vacancy in operational and supporting organizational roles are harder to monetize but even more important to know because of the impact those roles have on the company. The cost is often hidden from those who don’t understand the impact that these employees provide for the organization as a whole, but it should not be forgotten. This is just one example of those hard-to-monetize positions that need to be evaluated for cost of vacancy because they have an enormous impact on the company.
Why you need to be measuring it
If you’re not already measuring and evaluating cost of vacancy, give me just a moment to sell you on it. Cost of vacancy doesn’t just clue you into what you’re spending every time an employee is fired or leaves voluntarily. It also sheds light on where you can improve as an organization. For instance, you may become a lot more interested in reducing voluntary turnover when you see that cost of vacancy number in all its glory, leading to a beefed-up employee engagement and development program. If involuntary turnover is to blame, quality of hire is obviously going to be your number one suspect. Hitting a little closer to home, you may find that cost of vacancy is being inflated by a sluggish recruiting process, which may encourage you to discover ways you can reach more candidates or make use of technology that frees up your time to engage with candidates.
Watch for part two of The Cost of Vacancy to see how I crunch the numbers and to find out why it could be a game changer for your organization.