The Cost of Vacancy - Part Two

By Jessica Miller-Merrell 

If the word “vacancy” reminds you of a flashing neon sign on an old roadside hotel, its time to rethink the term. Cost of vacancy, or COV, is an often-forgotten, yet highly valuable measure of HR and recruiting success, and it’s one that we should be using more often. Just because the term might be outdated doesn’t mean the measurement is. The cost of vacancy metric is the HR metric you can use to truly demonstrate the value of an individual position or contributor within your organization. It can be game changing.

In part one of the series, I defined COV as a measure of how much a vacancy in a position costs your organization. I talked about what it can reveal, how you can use it to positively impact your processes and even organization, and how it should be widely adopted, not just used for revenue-generating and easily measurable roles.

Here I’m going to show how I crunch the numbers. It all boils down to four key areas:

Revenue per employee

This can be the simplest or most complex aspect of cost of vacancy depending on the role you’re analyzing. Obviously if the employee is in a revenue-generating role, you can easily average the amount that employees in that role bring in. If you don’t have that data available, you can also calculate the average revenue of an employee by dividing the total company revenue by the number of employees you have. Don’t forget to account for the added value that those in operational and leadership positions bring, even if it is harder to calculate that revenue.

Lost revenue per employee, per day

Now that you have a number that represents the revenue an employee brings in, calculate how much is lost per day. An easy way to determine daily revenue lost is to divide the revenue amount found in step one and divide it by the number of work days in a year, usually about 220. It can be eye opening to see that your company is potentially losing out on that money every day the position stays vacant.

Time to fill

Time to fill is going to be your multiplier in this equation, and the averages aren’t looking great overall. The Dice-DFH Mean Vacancy Duration Measure recently revealed that average time to fill is on the rise, clocking in at 25.7 days, which is just below the 15-year high of 26.5 days that we hit last year. In this third step, simply take the lost revenue per day found in step two and multiply it by the number of days the position is or was open.

What it costs your people

We know that turnover has an effect on employee morale and often leads to employee dissatisfaction or can become the cause of even more turnover. If you can look at a vacant position and point to higher than average turnover or a spike in turnover, that cost should be included in your cost of vacancy. This is one way we can monetize the non-revenue costs of losing an employee, which are sometimes far greater than the monetary costs.

Utilizing a cost of vacancy measurement and metric provides a straight forward view of what an open position really costs. It also appeals to senior leadership in a way that employee turnover, cost per hire, quality of hire or candidate experience never will. When you’re looking to put a number to what you already know is costing the organization, COV is the best approach.

Jessica Miller-Merrell, SPHR is a workplace and technology strategist specializing in social media. She's the Chief Blogger and Founder of Blogging4Jobs. You can follow her on Twitter at @jmillermerell.

The Cost of Vacancy - Part One

By Jessica Miller-Merrell 

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.

Jessica Miller-Merrell, SPHR is a workplace and technology strategist specializing in social media. She's the Chief Blogger and Founder of Blogging4Jobs. You can follow her on Twitter at @jmillermerell.