Calculating the Cost of Vacancy
Smart Hiring Begins with Accurate Information
Managers understand that vacant positions on their teams can increase the workload of other team members, reduce overall productivity, impact employee morale, and affect customer relationships. Yet even with all these repercussions, few organizations know the financial cost of vacancy (COV). As the new economy continues to evolve, managers must know the true cost of an empty position to make informed decisions about whether to recruit internally, hire temporary help, engage a professional search firm, or leave a position open.
Calculating COV can be a daunting challenge. Each position’s salary and business impact varies based on industry, responsibility, expertise, and value to your company’s projects or products. While it may not be necessary to conduct this analysis for every position at your firm, understanding the opportunity cost of your critical positions is essential to workforce planning.
The best practice in calculating the cost of a vacancy is to partner with the finance and accounting departments to determine an average or approximate value that will be used for HR and personnel budgeting decisions. The entire company can then operate under the same cost assumptions.
Tools for Calculating Cost of Vacancy
Average Revenue per Employee
When position-specific revenue and cost information is not available, this calculator estimates the average revenue each employee produces per day, assuming 220 working days in a year.
Revenue Loss per Position
Of course, not every employee generates the same revenue: a salesperson adds more to the bottom line than a payroll clerk, and their compensation usually reflects that difference. This calculator assumes that each employee generates revenue in proportion to their salary, and computes daily revenue loss depending on the compensation of the vacant position.
Improve Financial Forecasting
The current economic cycle requires managers and companies to look beyond headcount and associated personnel expenses to examine the opportunity cost of key positions left vacant. Cost of vacancy provides a standard format for your organization to measure this opportunity cost – and recruit new employees accordingly.
To learn the formulas behind these calculators, download a PDF of the full Topic Brief, Calculating the Cost of Vacancy.
Get the Calculating the Cost of Vacancy Topic Brief
A clear understanding of the value of each of your critical positions helps you make informed hiring decisions. To see the math behind the calculations on this page, download the Calculating the Cost of Vacancy topic brief.