Cost of Vacancy (COV) refers to the amount of money lost due to an unfulfilled job position. Keeping a role open can impact your company’s revenue, productivity, and employee retention rates.
If you are on the fence about filling an open role, calculating your COV is critical. The top three consequences of an unfilled job position include:
- Direct Loss of Revenue — longer timelines for completing projects and daily tasks
- Negative Impact on Brand — frustrated customers due to slower service or project delays
- Morale & Performance of Workforce — overwhelmed employees and lower employee retention rates
CALCULATING THE COST OF VACANCY
Several factors are taken into consideration when calculating COV:
- annual revenue
- employee headcount
- vacancy duration
- average employee revenue
- salary and benefits
The most basic formula for calculating COV is:
(benefits + payroll savings) - vacancy costs = COV
While benefits and savings are simple to add up, determining cost by role is a bit more complicated.
The following 7 steps will walk you through the process.
1. Determine Average Employee Annual Revenue
The average employee revenue is found by dividing your company’s annual revenue by the total number of employees in your organization.
Annual Revenue / Total Number of Employees
2. Divide Average Employee Annual Revenue by 260
There are approximately 260 working days per year after factoring in weekends and holidays, assuming a 5-day work week.
3. Define Your Multipliers to Determine the Impact of a Specific Role
Define multipliers on a scale of 1–4. The multipliers you choose should reflect the impact of each role.
Example multipliers:
- 1 for a coordinator role
- 2 for a junior tech role
- 3 for highly skilled roles like software developer or data scientist
- 4 for executive roles like a CEO or CFO
Example:
Annual revenue = 3,000,000
Number of employees = 24
3,000,000 / 24 = $125,000 (average employee revenue)
$125,000 / 260 = $481 (average employee revenue per day)
If you have an open data scientist role, you would multiply the average revenue per day by 3.
$481 per day X 3 (multiplier) = $1442 (average revenue per day for the data scientist role)
A data scientist at ABC has an average daily revenue of $1,442
4. Calculate Revenue Loss From An Open Role
Multiply the daily revenue by the time it will take to fill the open role. The estimated time to fill a position is the time between the first job posting and the hire date.
$1442 X 60 (time the position is left open) = $86,580 (revenue loss)
ABC company will lose $86,520 in revenue if they wait 60 days to fill their data scientist role.
COST OF VACANCY
5. Determine the Cost of Employee (COE)
You may be thinking, “But…we will save so much in payroll and benefits!” Let’s find out. We are almost ready to calculate your COV.
Next, we will calculate the Cost of Employee or COE.
Employee Salary + Cost of Benefits = COE
According to the Bureau of Labor Statistics, a good rule of thumb is that benefits cost 31.4% of an employee’s annual salary.
ABC’s salary for a data scientist is $120,000.
$120,000 X (.314) = $37,680
120,000 + 37,680 = $157,680
In total, a data scientist costs ABC $157,680
6. Payroll & Benefits Savings
Divide the COE by 260. Then multiply the daily COE by the number of days the role is expected to remain open.
$157,680 (COE) / 260 = $606 (daily cost)
$606 X 60 (days open) = $36,360 (savings in payroll and benefits)
ABC will save $36,360 in payroll and benefits while the role remains unfilled (60 days). But what will they lose?
7. Revenue Lost to Vacancy
(Payroll + Benefits Savings) — Revenue Lost to Vacancy = COV!
$36,360 (savings in payroll & benefits) — $86,520 (loss of revenue) = $50,160
ABC company will save $36,360 in salary and benefits, but it will cost them $86,580 in revenue. In the end, ABC company will lose $50,160 if the position is left open for 60 days.
Although it may seem advantageous to leave a position open, the opposite is true. And this does not take into account the loss of productivity, customer satisfaction, or employee burnout.
Arcanium can help.
Ready to get that open role filled? Arcanium’s full-service recruiting can decrease your Cost of Vacancy. Contact us today to get started.
