Employee turnover is inevitable. We know this. Sometimes it's management and sometimes it's beyond an organization's control. But one thing is certain: employee turnover isn't cheap. With high employee turnover rates, you're not only losing employees, but you're losing profits!

 

In calculating the total cost of employee turnover, you have to think about the entire process of re-filling the position. There are both direct and indirect costs. Direct costs include things like the recruitment process, interviews, administrative work and training. The indirect costs are harder to quantify, but research shows that they can be two to five times higher than direct costs. They include factors such as loss in productivity and lowered morale. Sometimes it's hard to factor in all the behind-the-scene costs. Here's a general checklist to see just how much employee turnover really costs:

• Costs due to a person leaving
• Recruitment costs
• Training costs
• Lost productivity costs
• New hire costs
• Lost sales costs

In future posts, we'll break down these costs and calculations in more detail.

 

Taking into account all these areas employee turnover affects, the calculations can easily reach 150% of the employees annual compensation figure. And with managerial and sales positions, it can be anywhere between 200% and 250%. Those are big numbers!    

 

Looking at numbers, here's a general example of just how costly employee turnover is. Let's say the average salary at a given company is $50,000 a year. If the cost of turnover is 150%, then the cost of turnover per employee is $75,000. So for a mid-sized business with 1,000 employees and an annual turnover rate of 10%, that's $7.5 million a year!

 

To avoid these high costs, organizations have to recruit and retain the best people.

 

To improve employee retention, it's essential for organizations to use effective hiring practices and to make sure the employee fits the job as well as possible.

 

Both employees and leaders need to have the right skills, behavior and attitude to fit their specific job roles and be successful.