(For key roles, should you want to calculate the actual cost, many of the factors you would need to include in your formula are discussed later in this article.) It is important to note that there is no magic or even standardized formula for the calculation of the cost of a vacancy, because the factors that must be considered are largely dependent upon the position, the industry, and the current stage in the product lifecycle. Unfortunately, calculating the actual COV for all positions in an organization would be ultra complex and time consuming, which is why many organizations opt to use a simplified formula that estimates the cost. In one unique case, it was as high as $200,000 per day. In some key jobs ó particularly in industries where time to market is a key factor in driving corporate success ó the cost of a single vacancy has been calculated to be between $7,000 and $12,000 per day. If you have the time, I strongly recommend that your organization calculates the actual costs of having a vacancy in key roles. Even the dumbest finance person realizes that without having a single employee, no matter what the cost savings, the firm would produce zero revenue. Cost-focused organizations end up seeing a position vacancy as a short-term reduction in expenses after all, salaries do show up on the balance sheet as an expense (not an investment.) That’s why it’s so critical to demonstrate the business impact of not having a performing employee in key positions. This is especially true in organizations where the HR budget is controlled by a CFO who continues to see the function largely as an administrative one. So many organizations these days have become so laser-focused on cost containment that they often overlook the possible longer-term detrimental impacts their actions regarding talent may have.
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![vacancy home for sales and economic impact vacancy home for sales and economic impact](https://i1.wp.com/www.brookings.edu/wp-content/uploads/2020/09/FigureE_LO.png)
![vacancy home for sales and economic impact vacancy home for sales and economic impact](https://www.focus-economics.com/sites/default/files/USA-Unemployment-January2019.gif)
Calculating COV is critical, because organizations are unlikely to place the requisite emphasis on addressing recruitment issues if they are unaware of the negative impact such vacancies may be generating. As a metric, it can be configured to measure the dollar impact of voluntary turnover and involuntary turnover, or the impact of a slow recruiting process that’s incapable of meeting the organizations growing talent needs. Calculating the cost of a vacancy (COV) is a critical activity, one that’s necessary to determine the actual business impact of talent shortages that result from a gap between the time talent is needed and the time required by the recruiting function to supply such talent.