January 19, 2005

What is Turnover Costing You?

Probably more than you want to know! The Bureau of National Affairs estimates that turnover costs US businesses about $11 billion per year. The impact varies widely across industries given differences in turnover rates—restaurants, for example have in excess of 100% turnover. For the average company, the costs of turnover can be substantial . . . yet not fully understood because the impact of turnover hits multiple budget items (e.g., salary, benefits, recruiting, training, marketing, travel, etc.). Add to this the impact that losing knowledgeable workers has, it becomes clear that the causes of turnover need to be understood and addressed.

Let’s take a look at a hypothetical example. Assume a company has 100 employees and the average salary is $45,000. Benefits add another 30% to the employment costs for each employee. Given an average turnover rate of 15% for US companies and an average cash cost of turnover of 25% (the average cash cost is the amount you have to pay someone for salary and benefits when they are not working for you), the annual cash impact of turnover for this company is $219,375. (100 employees x $45,000 average annual salary x 1.30 for benefits x 25% cash payout x 15% turnover rate)

If this isn’t bad enough, add in the indirect costs associated with losing staff, the costs become even more compelling. Some of the issues you have to deal with when people leave that are significant, but difficult to quantify are:

1. Loss of institutional knowledge
2. Disruption of customer relationships
3. Service interruptions
4. Change in team dynamics
5. Loss of mentors for employees

To further illustrate the impact on turnover, here are two real examples:

1. A 425-seat call center in Florida has a 38% turnover rate. It costs $10,000 to hire a new rep. Employees make an average of $12.50 per hour. New hires are paid during the 7-week training program. Just factoring in the training wages and the costs to replace lost workers, the turnover costs this call center $2.15 million per year.

2. A homebuilder in Pennsylvania with 5,000 employees has a 20% turnover rate. Given an average salary of $40,000 and another 33% for benefits, the company loses about $13,000,000 per year due to turnover. Improving this situation could add as much as 4% to the company’s bottom line

To address turnover issues, organizations need to measure employee loyalty and satisfaction consistently to identify where issues exist. The analysis needs to identify high-risk jobs, segments of the employee population that are at risk and management issues. This provides the basis for changing organizational policies, procedures and management practices that are negatively impacting employee

Posted by Greg Robinson at 03:02 PM | Comments (0)