Can you afford open roles? Understanding cost of vacancy

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By The Fetcher Team

Can you afford open roles? Understanding cost of vacancy

7 mins read

Calculating Cost of Vacancy
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In every workplace, talent comes and goes, and it's up to the recruiter to ensure open positions don't stay vacant too long. Here is where there is often a disconnect between recruiters and upper management. It's a common misconception that an unfilled position means you are saving money.

There are a lot of factors that play into the costs of an unfilled position or Cost of Vacancy (COV). We've broken them down for you below!

Understanding COV and communicating its significance to an organization's bottom line is essential for recruiters when it comes time to articulate the importance of an effective recruitment strategy to upper management.

Calculating the Cost of Vacancy

Even if math isn't your favorite subject, these straightforward COV calculations will equip you with tangible business metrics you can leverage for executive support. There are several ways to calculate COV, and which metric or combination of metrics you choose to utilize will depend on the type of organization you work for and the unfilled position you're looking to fill.

Direct Costs

First, calculate the position's salary and benefit savings to determine the direct costs of an unfilled position. Then, subtract the cost of temporary labor, and the overtime pay existing employees take to manage the extra workload.

  • Step 1: (Position's Salary / 261 working days) x Average Days to Hire = Salary Savings
  • Step 2: Position’s Salary x 30% = Benefit Savings*
  • Step 3: Salary Savings + Benefit savings – Cost of Temporary Labor and Overtime

** Benefit costs typically cost 30% of an employee's salary. While we use industry standards and averages, your calculations will be more exact with company data.

Example: Open Software Engineer Role

  • Average Salary in the U.S.: $106,561
  • Average Days to Hire: 35
  • Average Working Hours a day: 8
  • Step 1: ($106,561 / 261) x 35 = $14,289.79
  • Step 2: Position’s Salary x 30% = Benefit Savings*
  • Step 3: $14,289.79 + $4,286.94 - ($140* x 8 x 35) = -$20,623.27

** Freelance developers' rates (and any contracted role) will vary depending on the scale and complexity of the projects they're tasked with and their seniority level ($25 - $300/hr range). $140 is an average.*

In this example, the COV of an unfilled software engineer position for 35 days is $20,623.27. That's a lot of incentive to fill the role!

Lost Revenue

This model determines the COV for revenue-generating positions like salespeople. All employees, however, contribute to an organization's overall revenue. When any team is short-staffed, customer service usually suffers, impacting customer satisfaction and other key performance metrics.

You can estimate the average revenue for a specific position (if you have those numbers) or zoom out to the entire employee population using the below Average Employee Model calculation.

  • Step 1*: (Annual Revenue / # of employees) = Average Employee Revenue
  • Step 2: Average Employee Revenue / 261 working days = Daily Average Employee Revenue
  • Step 3: Daily Average Employee Revenue x Average Days to Hire = COV or Potential Revenue Loss

** When using the Average Employee Model, you can use a simple multiplier in Step 1 for roles deemed to be higher revenue drivers but without their own specific revenue numbers, like sales roles. For example, a customer success analyst might get 1X, a Software Engineer 2X, and a Product Manager 3X.*

Example: Customer Success Analyst (1X)

  • Average Company Revenue.: $20,000,000
  • Average Days to Hire: 30
  • Number of Employees: 150
  • Step 1: ($20,000,000 / 150) x 1 = $133,333.33
  • Step 2: $133,333.33 / 261 working days = $510.85
  • Step 3: $510.85 x 30 = $15,325.67

In this example, your open Customer Success Analyst position costs your company $510.85 in daily revenue. That's $15,325.67 a month!

Marketing & Recruiting

The longer a role is open, the more money, time, and effort you'll spend marketing the open position. The cost of converting a job seeker into an applicant (cost per applicant) is at an all-time high at an average of $19.

Once an applicant applies, you must also consider the cost of your applicant tracking system, assessment software, and any travel expenses for interviews you may cover for candidates. These costs are minor compared to direct costs and loss of revenue, but depending on how many open positions you have at your organization, they can add up quickly. Consider using an AP automation system to track the different spending categories.

Soft Costs

Unfilled positions create costs that are hard to measure as well. Vacancies impact overall productivity, employee engagement, and team morale. Nine times out of ten, temporary labor won't produce the same quality of work as a full-time employee. If other employees are taking on extra work, this can lead to burnout, which negatively affects team morale and, in some cases, can lead to more vacancies.

Alex Morse from Upfield quote

It also requires more work to measure opportunity losses inherent in vacant positions. If that position was filled, you never know how many new customers could have been captured, projects completed, etc. Additionally, the more specialized or advanced the job, the more potential opportunities your organization misses as the role stays empty.

Whether you use calculations with hard numbers or a summary of soft costs, COV Stats should be customized for your company and the messaging you convey to management.

These Cost of Vacancy statistics aren't meant to scare you! Rushing and hiring just anyone to fill a role can be just as costly a mistake! However, there are ways to hire faster and smarter without sacrificing the quality of your candidates. Automated sourcing tools like Fetcher are here to save you time and money!

With Fetcher, our AI sources top candidates for you so you can focus on more critical aspects of your job, like candidate engagement and team collaboration. On average, we help recruiters save more than 10 hours a week!

As a recruiter, ensure leadership understands how much money unfilled positions cost the company monthly. They'll quickly realize recruitment is essential to more extensive strategic conversations and will grant you more support.

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