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Cost of Vacancy Explained

Vacant sales positions can negatively affect your business in multiple ways. A sales representative or executive performs multiple tasks in their entire sales career. An open sales position will cause delayed revenues, missed opportunities, lower productivity, and poor customer experience. Therefore, it is crucial to calculate the cost-of-vacancy so that decision-makers throughout the organization can gauge the actual financial loss due to an unfilled sales position and speed up the recruiting process.

In this article, we will outline six easy steps to calculate the cost-of-vacancy for your company. So, let's get started!

What is Cost-of-Vacancy and How is it Calculated?

Cost-of-vacancy, or COV, is an important metric that companies can use to find out the actual impact of an open position on the business in monetary terms. COV takes into account factors like the cost of lost revenue and the time required for recruiting the employee for the job position.

Sales positions are revenue-generating roles. So calculating the COV for an unfilled sales role is a fairly straightforward method. We will take the following use case to understand the whole process in a simple way.

Let's assume that a U.S.-based company called XYZ Corporation lost one of its sales executives who used to get a salary of $100,000 annually. The average time-to-fill a sales position in the U.S. is 40 days. The company has a total of 125 employees and makes a revenue of $10 million annually.

Here's how you can determine the cost-of-vacancy.

01. Determine the average daily revenue of employees

The average employee revenue is calculated by dividing the organization's annual revenue by the total number of its employees. This value is then divided by the average number of working days per year, which is 260. So, the average employee revenue of XYZ Corporation is $307.69 per day.

02. Determine the average daily revenue of employees

Now, we need to determine the role-specific revenue of the vacant position. This is done by using a predetermined multiplier, which helps us to quantify the impact of the open role on the company's revenue. For example, we multiply the daily revenue of an open entry-level position by one. We use two as a multiplier for high-impact roles and three for leadership roles.

So for XYZ Corporation, let's say the vacant sales executive position has a significant impact on the company and hence it translates to a revenue loss of three times the employee’s daily salary.

03. Calculate the total revenue lost due to vacant position

This is done by multiplying the daily role-specific revenue by the anticipated time-to-fill the unfilled position. So we can say that XYZ Corporation will incur a loss of $36,920 for 40 days while trying to fill the open sales executive position.

04. Calculate the cost of employee

To determine the COV, it is important to first know the total cost of employees. To calculate this, we have to add the employee's annual salary and the cost of other benefits. In our use case, the annual salary of the sales executive is $100,000, and as per the Bureau of Labor Statistics of 2021, benefits cost should be 31.4% (.314) of the annual salary.

So, the total cost of benefits of XYZ Corporation's sales executive will be, 100,000 × (.314) = $31,400

Therefore, the total employee cost will be, 100,000 + 31,400 = $131,400 per year.

05. Calculate payroll and other savings

For this, we have to first calculate the daily cost of the employee. This is done by dividing the total cost of employees by 260 (total number of working days in a year). Then, the value is to be multiplied by the estimated time-to-fill the open position (40 days).

06. Calculate the cost-of-vacancy

Finally, the cost-of-vacancy is calculated by deducting the payroll and other savings from the total revenue lost.

What is Cost-of-Vacancy and How is it Calculated?

So, there you have it. The step-by-step guide to calculate the cost-of-vacancy. This makes it evident that despite not paying the salary and other benefits to the employee who has left the company, your company won't be saving money. In fact, you will lose a significant amount of fortune, productivity, and opportunities while the position remains unfilled. Hence, it is important to take the COV seriously and speed up your recruiting process!

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