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How Much Does That Vacancy Really Cost?

March 9, 2020
min read
Michael Vaynerman

The cost of a vacancy can be summed up in one simple phrase: opportunity cost.

It comes down to how many revenue opportunities your company or team is missing out on when you’re understaffed: how much more product you can manufacture, how many more boxes you could ship, or how many more people you could serve. 

So how can you actually add up the missed opportunities when you have a vacancy? Well, the numbers vary widely based on your business and how much additional value each of your team members creates. That missed return on each vacant position can be the most expensive, though you should remember, it’s only a small part of the full cost of recruitment

First: What does underutilization cost?

This part comes down to one simple thing: how much overhead your business has per employee. That’s going to be widely different in a factory where each worker has a specialized machine, an office where your primary expense is the space and equipment the employee uses, or a hotel where each housekeeper has their own set of cleaning tools. 

As a rule of thumb, businesses try not to exceed a 35% overhead rate. We’ll use this number to calculate how much your underutilized equipment costs. That’s the true cost of one employee per hour.

Using the example of a worker making $14 per hour:

Second: How much revenue would that worker create?

It should be safe to assume that your company earns revenue above and beyond what you spend on each employee. As a safe number, most workers generate what they cost the company plus 100% ROI on their work.

Finally: Adding time-to-fill.

On average, positions in the U.S. take 24 days to fill. These are 24 days where your position sits vacant, while your company misses out on potential revenue and your space and equipment gather dust.

A vacancy for a worker earning $14 per hour costs you approximately $7,258 in missed revenue and underutilized resources alone. This doesn’t even address the cost of going through the work to replace them.

Want a deeper look into the numbers? Download the True Cost of Recruitment

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