Definition · Hiring metrics
Cost of Vacancy
Definition
Cost of vacancy is the estimated value a business loses for each day a position stays unfilled, through lost revenue, lost output, overtime, temporary cover or missed service levels. Multiplied by the days a role is open, it puts a dollar figure on slow hiring and helps justify recruiting investment.
Also called: COV, Cost of an unfilled position, Vacancy cost, Cost of an open role
Formula
Cost of vacancy = (Daily value of the role − Daily cost saved by not paying it) × Days vacant + Cover costs
- Daily value of the role
- Revenue or output the role produces per working day. For revenue roles, use annual quota or average revenue per person divided by working days; for support roles, use a proxy such as revenue per employee.
- Daily cost saved
- The salary and benefits you are not paying while the seat is empty. Many simple versions ignore this, which overstates the cost.
- Days vacant
- Working days from when the seat became empty (or was planned to be filled) to the new hire's first day, often time to fill plus time to start.
- Cover costs
- Overtime, temporary staff or agency fees paid to cover the work during the vacancy.
Worked example
A B2B software company's account executives each close about $900,000 a year. Over 230 working days that is about $3,900 a day. The role costs about $600 a day in salary and benefits. The seat is empty for 60 working days and no cover is used. Cost of vacancy = ($3,900 − $600) × 60 = $198,000.
Two common ways to calculate it
The revenue method (above) suits roles with a clear link to revenue: sales, billable consultants, nurses in revenue-generating units, drivers. It uses the role's own production.
The revenue-per-employee method is a shortcut for roles without direct revenue: divide company revenue by headcount, then by working days, and multiply by days vacant. It is easy and widely used in business cases, but it overstates cost for many support roles and should be labeled as an estimate.
For operational roles, an overtime and service method is often more honest. A vacancy in a warehouse or contact center is mostly felt as overtime premiums, temp agency markups and missed service levels rather than lost revenue.
Worked example: a contact center
A 250-seat customer service center has 15 open agent seats. Each vacancy is covered partly by overtime at 1.5 times the $18 hourly rate, and partly not covered at all. For each empty seat, the center pays about 20 hours of overtime a week, a premium of $9 an hour over normal pay, or $180 a week. The uncovered hours push the service level from 80% of calls answered in 20 seconds to 70%, which under the client contract triggers a service credit of $5,000 a month.
With 15 seats open for six weeks: overtime premium of 15 × $180 × 6 = $16,200, plus about $7,500 in service credits for six weeks, total roughly $23,700. That is a concrete figure to set against the cost of an extra recruiter or a faster screening process. It also ignores harder-to-price effects such as burnout from the overtime, which feeds turnover.
How to use it
Cost of vacancy is most useful as a decision tool rather than a reported KPI:
- Justifying recruiting spend. If cutting time to fill by ten days on 40 sales hires saves $1.3 million in vacancy cost, a $150,000 investment is easy to approve.
- Prioritizing requisitions. Recruiters with 30 open roles should work the highest cost-of-vacancy seats first.
- Comparing hiring options. An agency fee may look high against internal cost per hire, but cheap if it fills a costly seat a month sooner.
- Building a [recruiting ROI](/glossary/recruiting-roi/) case for technology or headcount.
Common mistakes
- Ignoring salary savings. Using full revenue per day without subtracting the pay you aren't spending inflates the number.
- Using revenue per employee for every role. A receptionist does not generate average revenue per employee in a direct way.
- Assuming a new hire is fully productive on day one. Ramp time means the cost continues partly after the start date.
- Presenting estimates as facts. Show the assumptions so finance can challenge and accept them.
Frequently asked questions
How do you calculate the cost of an unfilled position?
Estimate the daily value the role produces, subtract the daily pay and benefits you are saving, multiply by the number of days the seat is empty, and add any overtime or temporary cover you paid.
What is the vacancy cost formula?
A simple version is (annual revenue ÷ number of employees ÷ working days) × days vacant. A more accurate version uses the role's own output, subtracts salary saved and adds cover costs.
Why does cost of vacancy matter?
It turns time to fill into money. That helps leaders see that slow hiring has a real cost and makes it easier to fund recruiters, tools or agency support where they pay back.
Is cost of vacancy the same as cost per hire?
No. Cost per hire is what you spend to fill a role. Cost of vacancy is what you lose while it stays empty. Comparing the two shows whether spending more to hire faster makes sense.