Glossary: HR & Recruiting Definitions
The cost of vacancy is an important key figure in recruiting and expresses what it costs a company to leave a certain position unfilled over a certain period of time.
Vacancies arise for a wide variety of reasons. Ideally, they arise due to the growth of a company, but they can also be due to:
Regardless of whether a replacement is planned or not many companies do not take into account that an unfilled position also costs money. Therefore, these “vacancy costs” must also be included in the budget.
In order to determine the cost of vacancy, several key data points relating to the vacant position must be taken into account. These are included in the cost-of-vacancy formula:
An accurate result should include every day it takes from the time a vacancy arises to the day a business would expect to successfully fill it.
The above are only the core components of the cost of vacancy formula. Depending on the position and the industry, there can be other factors added. For example, the projected turnover of a salesperson that the company would miss out on until the position is filled.
Now that the core components are known, let’s take a look at the cost-of-vacancy formula.
First, the gross annual salary is calculated down to the potential working days within the year so that it can then be extrapolated to the expected vacancy time. Then it is multiplied by the assigned factor. To put it more briefly:
Cost of Vacancy = Gross Annual Salary: Ø Working Days x Ø Time to Fill x Factor
Let’s look at a small case and calculation example for better comprehension:
A small business urgently needs a Content Manager who can maintain and expand the website and online shop content in line with SEO. So far, there is no one in the team who has the necessary know-how.
The gross annual salary for the position is €45,000. Since no one in the team could take on this task completely, but the position is vital for the company’s growth, it is given a factor of 3.
For the average filling time, we assume 121 days and use the average value of 250 working days/year.
If we now insert the values from the above case study into the formula, we get the costs that the company would incur if it left the position vacant for 121 days:
Cost of Vacancy – Content Manager = €45,000 : 250 x 3 x 121 = €65,340.
The costs of the unfilled position for this period alone are almost 1.5 times as high as those of the filled position.
At the same time, the company also loses the income that a competent employee would probably have earned.
The cost of vacancy is an important key figure for companies mainly because it is crucial for the maintenance of a company:
The cost of vacancy can then also be used to determine the budget for recruiting measures, which can be invested for the purpose of “damage limitation”.
How can companies reduce the Cost of Vacancy
There are a few simple ways to reduce the cost of a vacancy to keep a company competitive:
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