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How to Measure Cost of Vacancy (COV)

Calculating COV is critical, because employers may be unlikely to place the necessary emphasis (and budget) on addressing recruitment issues if they are unaware of the negative impact vacancies may be generating.

As we enter a third year of a global pandemic and recruiting teams are struggling to combat “The Great Resignation” that resulted from COVID-19, being able to identify the costs associated with working harder than ever to fill open positions is challenging. One important metric to consider is the cost of vacancy (COV).

 

Knowing the true COV can be the key to getting buy-in from company leadership for stronger recruiting and retention strategies. When a key employee leaves, some employers see a small dip in productivity balanced out by the cost savings of that person’s salary. However, the true cost of that vacant position can quickly surpass any savings and the impact on the employees who are still with your company could be disastrous. Recruiting teams need tools that can measure those costs and ultimately reduce the time to hire and length of vacancy.

While it varies by industry, COV can be estimated using the company’s revenue per employee (which is the company’s total revenue divided by the number of employees) and divide that by the number of working days in a year (260). This gives you the average revenue produced by an employee on a daily basis. 

You can also use this formula to calculate COV for a specific position. Here, we’ll use the example of an open Software Developer Role:

Mean Annual Salary in the U.S.: $109,950 (BLS data)

Average Days to Hire: 30

($109,950 / 260) x 30 = $12,686.53

 

The COV of an unfilled software developer position for 30 days is $12,686.53 in this example. For companies struggling to hire multiple developers, engineers, and other roles in tech, the COV can be in the hundreds of thousands of dollars. That’s a lot of pressure on recruiting teams alone, but there are other factors that we have to consider associated with COV.

Calculating COV is critical, because employers may be unlikely to place the necessary emphasis (and budget) on addressing recruitment issues if they are unaware of the negative impact vacancies may be generating.

The Cost of Vacancy Factors That Are Hard to Measure

While the straightforward COV calculation can give you the hard cost of a vacancy, the “soft costs” of vacancies can hit a company even harder. There’s the cost of temporary labor, the overtime pay for existing employees who are taking on additional work, and opportunities lost because new customers are not reached or projects are not completed. The more specialized or advanced the position, the more potential opportunities your organization misses as the role stays empty.

It’s difficult to accurately measure the negative impact a vacancy will have on productivity, employee engagement and team morale, and even harder to tie monetary values to these metrics.

While many companies in the technology space will hire temporary or contract employees to bridge the labor gap until they find permanent hires, temporary labor rarely produces the same quality of work as a full-time employee. 

If you have a team of 15 handling the workload that would typically be completed by a team of 20, it can lead to employee burnout. The longer the open positions are unfilled, the more likely we are to see a drop in overall productivity, employee engagement and morale. Vacancies may cause the team to miss its goals, thereby reducing the possibility of individual and team incentives, which may further reduce productivity.

Vacancies may frustrate other employees, causing them to be absent or disengaged at a higher rate than they normally would be. Perks for full-time employees, such as career development opportunities, training or conferences, may be put on hold until the team is fully staffed.

The bottom line? The soft costs associated with the extended periods of overwork due to vacancies will lead to more vacancies. Recruiting teams have to be able to demonstrate both the hard and soft costs of vacancies to company leadership in order to access resources to close time to fill for key roles.

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