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Every unfilled position in your organization is more than just a vacant seat. It’s a silent drain on your revenue stream, your team’s productivity, and even your company's morale. Unchecked, the cost of these vacancies can snowball into significant financial losses, project delays, and burnout among your best employees. So, how do you address this invisible yet costly problem?
What is the Cost of Vacancy (COV)?
Cost of Vacancy (COV) refers to the opportunity cost of having unfilled positions, calculated as payroll and benefits savings minus hard and soft costs like lost revenue, productivity declines, and decreased morale. It estimates the financial impact of open positions, especially for revenue-generating or high-impact roles. Understanding COV is crucial for prioritizing hiring efforts and justifying recruitment decisions.
Let’s break it down using a real-world example
Assumptions:
Annual Salary for the Open Role: $150,000
Benefits: 30% of salary
Company Revenue: $25,000,000
Number of Employees: 100
Time to Fill: 120 days (this is based on the average 3-6 months it takes to fill a technical role)
Step 1: Calculate the Average Daily Revenue per Employee
First, we need to determine the average revenue each employee generates:
Next, convert this to a daily amount by dividing by the number of working days in a year (assume 260):
Step 2: Role-Specific Revenue Impact
For high-impact roles, like a technical position or leadership, we typically use a multiplier of 2 or 3 to reflect the role’s importance to the company’s revenue. Let’s use a multiplier of 2 here, assuming the role significantly impacts operations.
Step 3: Calculate Revenue Lost Due to Vacancy
Now, calculate the revenue lost due to the role remaining vacant for 120 days:
Step 4: Payroll and Benefits Savings
Now, let’s account for the money you’re “saving” by not paying the employee’s salary and benefits during the vacancy.
Convert this to a daily amount:
Calculate the total savings over the vacancy period:
Step 5: Calculate the Cost of Vacancy
Finally, subtract the payroll and benefits savings from the revenue lost to determine the true cost of vacancy:
In this example, the company loses $140,769.60 due to the vacant role over 120 days. However, this doesn’t include the hidden costs like reduced team morale, project delays, and burnout.
Reducing Your Cost of Vacancy
The fastest way to reduce your COV? Speed up your hiring process. Companies that fill open positions faster save significantly more money, but rushing the process can lead to hiring the wrong candidate, which can be just as costly.
The Case for External Recruiters
We often hear the question: “Why should we use external recruiters when we already have an internal talent acquisition team?” The answer lies in quantifying the cost of vacancy and comparing it to the speed and quality of external hires.
Cost Comparison: Internal vs. External Recruitment
Metric | Internal Hiring (120 days) | Blackmere Hiring (45 days) |
Daily Role-Specific Revenue | $1,923.08 | $1,923.08 |
Revenue Lost | $230,769.60 | $86,538.60 |
Payroll Savings | $90,000 | $33,750 |
Total Cost of Vacancy | $140,769.60 | $52,788.60 |
In this scenario, Blackmere Consulting’s faster time-to-fill saves $87,981 compared to internal hiring. Even after paying external recruitment fees, the overall savings are significant. Not only do you reduce your cost of vacancy, but you also ensure higher quality candidates and less downtime, which leads to more productivity and fewer project delays. It's a win-win for your company’s bottom line.
The Ripple Effect of Open Roles
The damage doesn’t stop at lost revenue. Open roles put extra pressure on your existing employees, which can lead to burnout and decreased productivity. A quick, efficient hire, facilitated by an external recruiter, can prevent these issues from spiraling out of control.
Check out our Cost of Vacancy Calculator to calculate your cost of vacancy.