Having open positions affects the bottom line of any organization, but putting a real world value on such a dynamic concept can sometimes prove to be difficult. A great place to start is by determining the quantifiable revenue per employee (QRPE), which can be useful for not only calculating the cost of vacancy but also measuring an organization's operating efficiency.
Roles and Revenue
First look to your employees to further specify a value relative to role. Employees en masse of course all contribute to an organization's overall bottom line; however, there are three main types of roles that function unilaterally and collectively to spur top and bottom line growth in different ways:
- Revenue generators: These employees interact with clients, prospects and customers to directly generate revenue streams. These roles range anywhere from sales reps to truck drivers to collections agents.
- Revenue enablers: These people provide administrative and operational services that support revenue generators and enable them to perform more efficiently. These employees include dispatchers, customer support, finance and marketers.
- Revenue protectors: These employees provide the legal, security, policy, and compliance monitoring and enforcement that ultimately serve to protect and safeguard the revenue pipeline from fraud, corruption, theft and interruption. This group includes security personnel, insurance adjusters/claims processors, legal/billing and human resource departments.
Determining Your Cost
Once these roles are clearly defined, organizations can now calculate their QRPE as it relates to each role.
The best way to do this is to look at the true contribution that someone generates, enables or protects on revenue annually and divide it by 255 (number of business days worked in a year). This will give you the true daily lost revenue specific to the position you are trying to fill. For example, say a sales person generates $1,200,000 QRPE annually. Dividing that number by 255 results in $4,705 per day in lost revenue. If it takes 40 days to fill the position, then the resulting revenue loss is $188,235.
Another more general way to do this is to take the entire annual revenue of your company and divide it by the number of employees. This will give you a directional figure. However, this applies the same value to all employees, and doesn't take in to account true impact per role. When looking at making an infrastructure change like outsourcing recruiting, it is important to do this per role.
Knowing this figure, even in a ballpark sense, allows organizations to make more informed decisions and better justify changes in strategy.
Understanding the daunting costs of vacancy should encourage organizations to investigate the factors that trigger them. Developing proactive measures to address these factors is further enhanced when armed with QRPE cost benefits analysis. The two main factors we will consider are the time it takes to fill a position and turnover. There are many measurable metrics in recruiting, but we have found those two are the most closely tied to a business case. They give you a quick diagnoses on whether a change should be made. As an example, changes needed could look like outsourcing of recruiting, improvements in your onboarding process or bolstering things like performance, succession and compensation management. As well as other systems and processes that touch the employee life cycle.
Identify Your Metrics
First, evaluate your historical data to gauge the average days to fill a vacancy. This should allow you to determine the average days to fill for each of the three types of roles (generators, enhancers and protectors) segmented by department and positions within them. By knowing this number you will be able to understand the revenue implications possible by reducing the time it takes to fill positions.
Factors Triggering Turnover
Next, itemize the factors causing turnover per type of role. These factors should include when turnover is occurring and the reasons for leaving — for example, low compensation/benefits, company culture, workload overcapacity, redundancy of tasks, low morale, weak managers or work-life imbalance.
Lastly, the data surrounding tenure should be fully audited. Tenures falling short of one-year could indicate procedural issues needing immediate attention. Turnover in the first 90 days could indicate problems with the hiring process and gaps in recruiting. Turnover at 90 days to six months could indicate a shortfall in onboarding and training programs. Turnover at six months to one year could indicate need for better hiring manager training, or more frequent check-ins with employees to gauge their happiness. After one year, turnover reasons can include inadequate compensation/benefits packages, a need for better performance or succession tools or lack of growth opportunities. As a caveat, depending on the skill level, the factors above can be found either earlier or later in tenure.
Buy or Build
Organizations should then decide how much of any function they want to bear in terms of resources and costs. It boils down to a question of whether the organization has the time and resources to build a fortified solution in-house or leverage the expertise from outside vendors (leaving the existing organizational structure undisturbed).
Companies must also consider the time it will take to build it vs. long term results. If you build it and it's not successful, then what? Or you build it and it's short term, you then have to consider outplacement of the staff you built to handle the need.
Outsourcing a function is often more expensive, but it comes with a historical higher degree of success if managed properly internally, which is justified through a business case related to cost of vacancy.
Building In-House Recruiting
Organizations opting to integrate recruiting as a core competency may need to hire more recruiters and supporting roles. Much like constructing a building, this involves restructuring part of the ecosystem to galvanize the foundation and upgrading technology to boost analytics and automation functions with data-driven recruiting platforms. This long-term solution involves heavy upfront investment costs to generate greater ROI with time.
Recruiting Process Outsourcing
Organizations opting for quicker, highly scalable and cost-effective solutions are suitable for recruitment process outsourcing (RPO). Generally, organizations hiring greater than 150 people annually are ideal for this option. Leveraging an experienced provider that can perform all the functions of an in-house team, while also assisting with administrative functions and adding value such as talent consulting, data analytics and more, can provide a foundation for future success. RPO has also shown to deliver 30 percent reductions in time to fill and turnover as well as improvements in the entire recruitment life cycle. These improvements almost always carry a positive ROI when related to cost of vacancy.
This hybrid option bolsters the recruiting function of the HR department by leveraging both internal teams and expanding capacity through RPO as needed. Tensions must be monitored as cracks can form as a result of fusing fragments of two strategies. Organizations should strive to determine how to integrate and streamline components into their ecosystem to harness the greatest efficiencies relative to their cost of vacancy analysis from the QRPE data. This is often done by looking at each team's core competency and the roles the team members are individually working on. This is something you see large organization doing more often to add high levels of scalability and redundancy in their recruiting structure, almost like an insurance policy for recruiting.
Regardless of which strategy you choose, whether it's to bolster your current ecosystem, outsource it to a provider that could drive better business outcomes or a hybrid approach. Being armed with data around cost of vacancy segmented by role should help give you the baseline intelligence needed to build out a business case that aligns with business outcomes. Giving your organization the direction it needs to focus on the correct people-related infrastructure and systems necessary to bolster success for years to come.
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