The Cost Of A Vacancy

We have compiled research from many credible sources to determine the true cost of a vacant position.

Most hiring managers understand that vacancies result in an obvious direct cost to a company. However, what most hiring managers and business leaders underestimate is the degree to which a vacancy harms their organization. While direct costs are more tangible and easily understood, the opportunity costs and increased risk of a vacancy can be the silent killers.

A vacancy weighs on a company in 3 significant ways; direct cost, indirect cost, and risk.

1. Direct Cost of a Vacancy

Direct cost is the most tangible as it is the literal loss of revenue and productivity due to the loss of an employee.

2. Indirect Cost of a Vacancy

Indirect cost covers the effect a vacancy has on the department it occurs in, and the consequences of leaving the position vacant.

3. Risk of a Vacancy

Vacancies increase the risk from external forces a company faces. The loss of competitive advantage and potential loss of market share are components of risk.

Example of Direct Cost

The average operations manager in a medium-sized manufacturing company earns that company 4.6 times their own annual salary. The loss of an operations manager worth $130,000 per year would feasibly incur a loss of earnings potential starting at $1,600 per day. If the same position remained vacant for six months, the total direct cost incurred by the company would be over $300,000. Considering the indirect costs associated with the vacancy compound as time passes, the indirect costs can easily exceed the already debilitating direct cost.

Cost to Culture

Vacancies spark widespread apathy. As an indirect cost of a vacancy, apathy leads to disengagement, and eventually resentment. Employees working in an under-staffed department are often responsible for forming some stopgap to cover the loss of productivity. This increase in work decreases bandwidth and causes other team members to pick up the slack of those employees. While this solution may work for some time, it is far from sustainable. Not only are employees affected, but managers leading perforated teams also have higher rates of stress, frustration, and resignation. In setting an environment of empty chairs, the workforce becomes disgruntled, overly critical of management, and apprehensive of the company’s long-term outlook. In short, by leaving a position vacant, the potential for more vacancies to appear becomes significant.

External Perception

Externally, a vacancy, when perceived by the market, will create a negative consumer perception, a decreased growth rate, and a loss in a competitive edge. Consumers are often directly affected by vacancies. As production time increases, communication collapses, or product stagnation sets in consumers are going to notice. These factors lead to building a pressingly viral negative perception of the company. As consumers begin to notice, changing that negative perception will become next to impossible to reverse. The loss of the companies target market will, in a competitive market, will quickly be converted by that companies competition. The loss of consumers, will have a direct effect on sales and moreover on growth rate. With a smaller base of revenue, there are fewer resources to invest in internal improvements. Those improvements being the sourcing of potential talent or developing the skills of the current employee set. This cycle creates a negative feedback loop damaging the company further with ever loss caused by the vacancy.