What Do Vacancies Cost You?

Every good business person understands that it takes talented, productive people to grow an enterprise. Employee salaries represent a real cost to the company, but they also represent an opportunity. A study by Harvard University found that the average value of a productive employee is roughly two-and-a-half times their salary rate. Use the calculator below to find your cost of vacancy.

*For revenue-producing positions including sales, use the following calculator.

Too often, good companies leave critical positions unfilled while waiting to identify and hire an appropriate candidate and bring them on board. In addition to the above costs, an employer should consider some other very real but hard-to-quantify costs:

1. Some companies are forced to pass up potentially profitable contracts or projects because they simply don’t have adequate staff to get the job done.

2. Worse yet, if the short-staffed company takes on the project and fails to meet their client’s delivery and quality expectations, they may end up with an unhappy client, overworked employees and even financial penalties for non-performance.

3. Lost clients are way too hard to get back to risk disappointing them.

4. Vacancies often make managers reluctant about terminating marginal employees. Someone may prove better than no one, so mediocrity is tolerated.

5. Someone typically has to fill in for the absent employee. That often means doing a job that you are unfamiliar with, not very good at doing, and perhaps unhappy about doing.

6. Vacancies often hurt team performance and morale and may lead to lost incentives.

7. High-value employees may resent being asked to perform lesser responsibilities, i.e. an office manager covering the front desk on an extended basis.

8. Managers who are filling in for absent employees don’t have much time to actually manage, which is their primary value.

9. Vacancies may require the usage of high-cost consultants or temporary employees.

10. Vacancies can result in the underutilization of expensive equipment and facilities.

Other Examples

Banking
A vacant loan officer position that remains open for two months may easily cost a bank $67,000 in lost loan revenue.
($10 million in commercial loans x 4% interest=$400,000 annually, 1/6 of $400,000 =$66,666.

IT/Software
A money-saving systems upgrade that would save a company $250,000 annually (yet remains incomplete and un-implemented due to short staff) could cost $41,666 in two months.

Manufacturing
A $25,000 CNC lathe sitting idle for two months due to an operator vacancy could cost thousands of dollars in lost production ($8333 in two months if the lathe produces $50,000 in product annually), not to mention another $1,000 in amortized cost for the lathe in two months.

Accounting
Loss of internal controls during a two-month Controller vacancy could entail substantial penalties for unfiled payroll taxes and could create opportunities for undiscovered financial fraud.

At the CFO level, an extended vacancy could mean missed acquisition opportunities, delayed public stock offerings, etc.