The cost of unfilled positions

After all my years in the employment and staffing field, and as founder and president of the search firm Kemper Associates, I am amazed to find how many companies perform in a damage control and seat-of-the-pants fashion in many every day business operations; isn’t it true? We react to circumstances, rather than plan a strategy designed to control our company’s destiny through careful staff planning.


Well, in the monthly columns I am about to write, I hope to remedy this situation a bit. Each month I will consider a different facet of employment, from both the employer’s and employee’s point of view. We will look at areas of employment opportunity like permanent versus contract staffing. We will also examine legal pitfalls in such important areas as interviewing, and in hiring temporary or contract employees.

In another month’s column we will see how you can use your benefits package to attract and keep good employees. We’ll examine strategies to sharpen your recruiting and cut your employee turnover. Additionally, we will consider situations that can save you money, such as our first article here which shows how unfilled positions can cost you valuable dollars.

Calculate the cost of unfilled positions
Don’t be put off or scared by the few minutes of very basic math we will use in the next few paragraphs, as we work to show just how much we lose when one of our positions is left unfilled for long. The results will surprise you, and be worth it, I assure you.

By assuming that each current employee has a positive revenue impact, which they should, it is easy to calculate an average minimum baseline cost of each of your open positions. Use the following values in the two-step calculation below.

•  R = Annual company revenue
•  E = Number of employees

Step one – Calculate Revenue per Employee
R / E = Revenue per Employee
Step two – Calculate Daily Revenue per Employee
Revenue per Employee/365 = Daily Revenue per Employee

It’s easy to see the money lost in other businesses on things like unrented apartments, unfilled airline seats or unsold produce at the local market. Although it may be tempting to disagree, open positions in our companies represent a very similar, lost revenue opportunity.

Set your lost revenue limit
Do not be deceived into thinking your open position has no real value. Do the above calculation and then identify an acceptable future loss level. For example, if step two revealed that your daily revenue per employee is $300, and you are ok with future lost revenue of $10,000, you have about 33 days to fill your open position, $10,000 divided by $300 equals 33.33 days.

Cost of open position versus recruiting spend
Of course, different positions have different costs per day based on how much revenue that role brings in to the organization. Some positions, realistically, cost a company more to leave open than others, and many companies more actively recruit for these positions based on this increased cost-per-opening.

One way of determining if you should invest more in recruiting for such a position is to determine if different recruiting tactics lead to filling this position faster, and if the cost of that is less than the cost of leaving this position open then you need to get on trying to get that opening filled.

For example, let’s say that in a certain department the daily revenue per employee is $500 and the department hires for five positions per year. If the department was able to invest more in recruiting strategy and shave five days off recruiting per position, this would save the company $12,500 in lost potential revenue per employee. Meaning it would be in the company’s best interest to spend more on recruiting to make a hire quicker. Here’s where using an employment specialist makes sense.

These numbers often go unrealized when a position is open, but they can help you to build a case against keeping a position open too long. It is important you realize the money that can be saved when you incorporate the right solution into your recruiting efforts. The right recruiting solution, including the proper use of contract professionals, not only brings in quality candidates when you need then, but it improves your company’s bottom line in the process.

See you here next month for our article: Are you asking legal interview questions?

Philip Kemper is founder/president of Kemper Associates, a 33-year-old Chicago-based national executive search firm, specializing in communication arts and production. This includes staffing tradeshows and exhibits, staging and equipment rental, business meetings and events production. His complete bio is on LinkedIn at http://www.linkedin.com/pub/philip-kemper/2/795/308/. For more information, visit www.Kemperassociates.net. For employment needs, contact Kemperassoc@hotmail.com, or call 312-944-6551.