What is the True Cost of Employee Turnover?
How much does it actually cost your business when an employee leaves? Most leaders don’t really know, but it’s a much bigger number than you think it is. Let’s break this number down to get a better idea of the true cost employee turnover.
1) First, there is the simple cost of hiring a new employee when an existing employee leaves the company. That dollar amount varies, but on average it’s between $7,000 to $10,000 per hire. For managers and higher levels, that number is usually much larger, especially if you use a recruiting firm to help you.
2) Then you have to consider the cost of possible overtime or the cost of stress on other team members when an employee leaves the company. The work doesn’t go away so other employees need to pick up the workload. That can cause overtime if the employees are hourly or it can cause stress for other team members until a new employee is hired and brought up to speed.
3) Another hidden factor often not considered is the learning curve for the new employee to become fully productive. In most cases, this can take 3 – 12 months. This is very dependent on the role they are in so a good average would be 6 months to become fully productive.
4) The last factor to consider is the cost of lost productivity of the employee that left the company. We have to make a few assumptions here to illustrate the point. For this example, we will use a salary of $60,000.00 which is conservative to show the monetary impact of turnover. For an employee with one year experience, take 50% of their $60,000 salary as lost productivity or $30,000 due to their exit, an employee with 3 years of experience, take 100% or $60,000, an employee with 5 or more years of experience take 300% or $180,000. An employee with 5+ years of experience can do their job much more efficiently. Therefore, for just these 3 employees the lost productivity is $270.000! This is to show the monetary impact of turnover.
Of course, your annual turnover might be much higher than 3 employees, and the average salary or hourly rate might be much larger than $60,000. That’s only 3 employees making $60,000. If you lose 30 employees annually, that lost productivity would be $2.7 million dollars, that number directly impacts your bottom line.
To summarize: spend time creating a great selection and hiring process, but the game changer is spending even more time and energy on retaining your talent. Re-recruit your current staff each day, especially the top talent in your company which on average is 15-25% of your workforce.
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