Calculating the Costs of Unfilled Positions

Whether you have a small business or a huge corporation, a little coffee shop or a major technology research lab, one thing is true: the longer a position goes unfilled, the more an unfilled job costs. Open positions are much more costly than most business owners realize, and those costs will start adding up as soon as an employee leaves or a new position is created. Often, business owners or managers don’t push to quickly fill positions. They feel as though taking their time in recruiting, interviewing, and hiring someone to fill an opening is not a problem.
 
If a position goes unfilled for too long, however, the problems it creates takes on the snowball effect. Other employees begin to feel more stress because they are doing their jobs plus picking up some of the work normally done by the person who would otherwise be occupying the open position. This can result in missed deadlines or employees working extra hours just to keep up. Also, more mistakes may get made, especially if an employee has to take on a task he or she doesn’t feel qualified to do or doesn’t fully understand. Eventually, this stress and unhappiness makes its way to customers, who may notice a decline in the quality of your product/service or who may see that your employees aren’t engaged.

How Much Does it Really Cost?

Despite the affect an unfilled position can have on your employees, some business owners or managers still don’t believe that the costs add up to very much. That’s because these individuals deal with hard data, and it’s very difficult to place a specific dollar amount on stressed employees. Fortunately, there’s a formula devised to create a solid estimate of how much money is being lost as a result of an open position. This formula changes a bit depending on the industry being considered. For this example, we’ll look at a sales associate position and what it breaks down to per day.
 
First, figure out the cost of the position per year. The formula for a sales associate looks like this:
 
(Yearly sales quota x 1.24) – (total salary of the position x 1.20)
 
Then divide that number by 365 to see how much an unfilled sales associate position costs your company every day. This can add up very quickly. For example, say that the yearly sales quota is $1,000,000 and the position paid $75,000. The math would look like this:
 
(1,000,000 x 1.24) – (75,000 x 1.20) / 365
(1,240,000) – (90,000) / 365
(1,150,000) / 365 = $3,150.
 
This means your company would be losing $3,150 every day that the position goes unfilled!
 
For positions that work closely with clients, are highly technical, or are executive-level, this amount would be even higher.
 
What about a position that doesn’t directly bring in revenue? There’s a formula for that, too:
 
The yearly total revenue of the business / the number of employees you have / 365.
 
As a result, if your business brings in $1 million dollars a year and has a team of 50 employees, you’d lose $54.79 a day. That may not seem like nearly as much, but again, it adds up very quickly. According to the September 2017 report by DHI Group’s Hiring Indicators, construction jobs are generally filled in 12.7 days, while health services positions take an average of 49 days to fill. This means that a $1 million dollar a year company could lose anywhere from $695.83 to $2,684.71 depending on the industry. These figures are also very likely outdated by now.

Do You Need to Revise Your Hiring Process?

There are a number of reasons why a position may go unfilled for weeks, or even months. Sometimes, it’s the pay. At other times, it’s hard to find qualified candidates because the job requires a very specific skill set. But then, sometimes, the issue is the recruitment process being used.
 
If you’ve noticed that it’s taking you over a month to hire someone for an open position, you may need to re-evaluate the process that you use to hire people. Are you advertising open positions in the right places? Do you ask the correct questions during interviews, have the right people come in, or promptly respond to applicants? Any of these things can result in qualified candidates going elsewhere. That, in turn, can lead to a position continuing to remain vacant.
 
There will always be a time when a position is vacant after an employee leaves. There’s no way of getting around that. However, you can be ready to fill empty positions and have a process which will ensure that you get the right people for the job hired as quickly as you can. Doing so will reduce the costs you have to pay every day that a position remains empty.
 
Need some help evaluating and optimizing your hiring process? It’s not always easy to see where the problems are because you are so familiar with your routine process. That’s where Lauber Business Partners can help. We bring an outside point of view which can help you see exactly where your process needs to be changed. Contact us today to learn more about how we can help you.