The Hidden, Deadly Costs of Employee Turnover

Employee turnover costs are largely hidden. They don’t hit the profit and loss statement; they aren’t line items in the budget. However, they can have a very real and potentially deadly effect on your bottom line.

Once upon a time there was an HR Manager of a non-profit organization who only wanted to help people and heal the world. Unfortunately, evil kings and queens of neighboring lands kept luring approximately 30 of his entry-level employees away every quarter. The HR Manager became very concerned and sat down to do some math. He averaged that 10 people left a month and (very conservatively and to keep round numbers) estimated that it costs $3,000 per employee to replace him. This amounts to $30,000 per month or $1,000 in employee turnover costs every day of the month! And annually, the total costs come to $360,000!!!

The HR Manager was so distraught, he didn’t know what to do. Those turnover costs were taking away from all of the good that he wanted to do in his land. He went to his king and queen and together they devised a plan to keep the evil kings and queens from enticing away any more of their employees. And they all lived happily ever after….

Does this fairy tale sound familiar to you? Are you experiencing similar difficulties at your organization?

The truth is actual turnover costs are usually much higher than we think they are – until we estimate them. There are even sources that provide these turnover cost estimates: 30-50% of the annual salary of entry-level employees, 150% for mid-level employees, and up to 400% for specialized, high-level employees!

And yes, some turnover is necessary to replace marginal or poor employees with more productive ones and to bring in new people with new ideas and expertise. However, high turnover costs are both avoidable and unnecessary. Note: This is where your focus should be –on retaining valued performers while replacing poor ones. How do you make this happen? I suggest the following three steps.

Step 1. Think about the obvious and hidden costs involved when an employee leaves. These can include:

• Exit costs
• Recruiting
• Interviewing
• Hiring
• Orientation
• Training
• Compensation and benefits while training
• Lost productivity
• Customer dissatisfaction
• Reduced or lost business
• Administrative costs
• Lost expertise
• Temporary workers

Step 2. Don’t wait until turnover costs become unacceptably high before you implement a retention program. Put one in place before you have a crisis situation. You not only need to find out why employees leave your organization, but you need to find out why others stay.

Step 3. Talk to your MVEs (Most Valuable Employees) now in order to find out what keeps them with you, why they might leave, what kinds of competitive offers they may find attractive, and what they need to be happier and more productive in their jobs. You’ll do a better job of keeping them (along with their expertise and value). You’ll also find out highly beneficial information about improvements your company needs.

Turnover is expensive. Sometimes it cannot be avoided, but when it can, you should avoid it by doing the right things for your employees. Begin to measure your costs and very importantly, look at who is leaving so you’ll know if you are retaining your best people. Waiting until there is a crisis limits your options instead of affording you the flexibility to fix the original problem.