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The High Cost of Employee Turnover

Posted on in Growth Strategies

By Lalaina Rabary, VGM Marketing

Most business owners recognize that turnover is costly but cannot put a number to the actual costs. Why? “Turnover” isn’t a line item on profit and loss statements. After a little investigation and math, I found the financial impact of high employee turnover to be staggering.

Just how much does high turnover cost?

Employee turnover can be difficult to quantify due to many variables – employee roles, years of employment, wage, industry, etc. However, many studies have tackled the topic, pointing to the fact that turnover isn’t cheap.

A study by the Center for American Progress found that the average cost of replacing an employee who earned $30,000 or less would be 16 percent of their annual salary. For highly trained positions, the cost could be up to 213 percent of their annual salary. So, if a highly trained manager is making $65,000 per year and decides to leave, the cost to replace him/her would be $138,450.

When calculating the real costs of losing an employee, Josh Bersin of Bersin and Deloitte outlines several factors to consider:

  • Cost of hiring (advertising, interviewing, screening, hiring) and onboarding a new person (training, management time)
  • Lost productivity: A new person may take 1-2 years to reach the productivity of an existing person.
  • Customer service and errors: New employees take longer and are often less adept at solving problems.
  • Training cost: Over 2-3 years, you likely invest 10-20 percent or more of the former employee’s salary in training.

The Antidote: Employee Satisfaction

To avoid the crippling cost of high turnover, invest in your employees. This is something all businesses recognize, but struggle to execute. If keeping employees is proving to be difficult, now is the time to create an employee retention strategy. A winning employee retention strategy goes beyond compensation; Entrepreneur cites that it addresses all the things that “make employees feel successful, secure and appreciated.” Before you get started, keep these things in mind:

  1. Money doesn’t always buy happiness.
    If soaring salaries and big bonuses aren’t feasible for your business, don’t worry. Data shows that money isn’t the single source of employee satisfaction. In a study by Accenture, 43 percent of respondents identified “a lack of recognition” as the reason they were considering walking out the door. Make sure to recognize your employees!
    If you’re looking for a great way to recognize a phenomenal leader within your business, nominate her for the HME Woman of the Year Award. This award will offer industry-wide recognition to a woman who has made significant contributions to her company and the HME industry.
  2. Do not underestimate the importance of good management.
    Bad bosses are one of the top reasons people leave their jobs; keep this in mind before designing your strategy. Gallup CEO, Jim Clifton, stresses the importance of hiring good management in his summary of the State of the American Workplace employee engagement study, “When you name the wrong person manager, nothing fixes that bad decision. Not compensation, not benefits —nothing.”
  3. A low turnover rate doesn’t equal happy employees.
    It can be tempting to look at a low turnover rate and think all is well in your business. Turnover rate alone cannot tell you why people are leaving or staying at your company. For example, people may not be willing to leave their jobs due to a tough economy. Think of your turnover rate as an indicator of the general health and wellness of your business. In order to meet the needs of your employees, you will have to dig deeper to understand why they are staying or leaving.
  4. Your expenses are investments.
    Shifting health care policies call for a dedicated and talented staff. Yes, there will be costs associated with maintaining employee satisfaction, but think of those costs as investments. I cannot say that employee appreciation events combined with extra paid time off will be the magical formula to keeping your employees happy; that would be oversimplifying a very multi-layered topic. I am saying to think twice before scrapping these items from your budget - their costs are minimal to that of losing a good employee.

Talented, hard-working and dedicated employees are worth a lot to your business. If you want them to stay, you must think seriously about how you are going to keep them and put together a strategy to do so. Stay tuned for more tips on hiring and retention from the VGM Group.

 

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