How much does low staff retention cost your business?
Anyone who was ever involved in staffing and employee training will know that the employee turnover costs can reach staggering heights. Not least because of the eye-watering agency and training costs, but also because of the knowledge and contacts every employee walks away with. The better the employee, the more vast is the knowledge and the network. While some level of staff turnaround might be seen as a good thing, the Revolving Door Syndrome – when the doors don’t stop spinning – can ultimately seriously impact company’s books and performance.
The associated problems run like a common thread throughout industries and often result in poor customer service performance and low customer satisfaction. True, there is an expectation of high performance, fueled by low tolerance towards poor performers. Increasingly however, the change is driven by the employee who is happy to ‘shop around’ for a better ‘motivation package’.
It is immensely hard to put the final tag on expenditure in human capital and the impact is often being overlooked.
Evidence suggests that turnover is attributed to dissatisfaction with work relationships, job content, faulty or inadequate hiring practices, and compensation. Replacing employees costs the employer time, energy and results in lost productivity. Of course, it’s immensely hard to put the final tag on expenditure in human capital and the impact is often being overlooked.
The head hunting, interviews, inductions and training cost money. So do so-called exit interviews and, more importantly, lost knowledge, expertise and oftentimes client’s trust. By measuring the turnover rates and costs, senior management are equipping themselves with resources to enable simple and effective problem analysis and decision-making.
The cost of employee turnover
When the trend reaches C-Level management, it comes with a hefty price tag. Turning over one C-Level manager can cost on average 3 to 5 times their annual wage and benefits.
A survey conducted in the US found that it takes up to six months to get a new employee working reasonably proficiently, eighteen months until they are integrated into the culture of an organization and whopping twenty-four months before they really learn the ins and outs of the brand. The cost and impact of Revolving Door Syndrome varies significantly depending on the industry and Modus Operandi (MO) of every particular brand. Some companies are yet to understand the impact to their seasonal intern workforce policies to the image of their brand.
Low staff retention on the entry level is undoubtedly frustrating to both employer and the clientele. For companies who have adopted this harmful policy as their MO, the overall performance and revenues reach their ‘glass ceiling’ pretty quickly. The poor performance becomes the unavoidable and unquestionable norm that spreads quickly and ultimately affects the management.
When the trend reaches C-Level management, it comes with a hefty price tag. Turning over one C-Level manager can cost on average 3 to 5 times their annual wage and benefits.
A survey conducted in the US found that it takes up to six months to get a new employee working reasonably proficiently, eighteen months until they are integrated into the culture of an organization and whopping twenty-four months before they really learn the ins and outs of the brand.
There are various studies looking into the cost of staff turnover and its effects. Direct expenses for instance, can vary from 46 percent of annual pay for front-line employees to 176 percent for IT professionals and 241 percent for middle managers, according to Washington-based Corporate Leadership Council. Some companies have marked their costs at 30 to 50 per cent of annual salary. According to senior research analyst Jennifer Perrier-Knox, replacing C-Level manager might take half a year to simply find the suitable candidate. Expect a massive lag in productivity and, potentially, in the employees’ morale. Unless managed properly, the lag can realistically last for years, with trickling effect affecting all departments and facets of organisation.
So how can you put a price tag on a low staff retention?
Calculating the costs
Pre-departure costs
The amount of time spent preparing and conducting exit interviews and other administrative activities. Multiplying the HR wage rates by the amount of time spent will generates a fairly accurate estimate of pre-departure costs.
Recruitment costs
The recruitment costs are pretty straightforward; the costs of advertisement and / or recruitment agency as well as time spent for meetings and communication with the recruiter make up the total cost. The agency costs can reach up to fifty per cent of the employee’s annual salary – a pricey add-on that is worth remembering.
Training costs
Training new employees’ requires both time and resources that might have been used elsewhere; on developing skills of existing employees or on research and development, for example. New employee means unpredictable production flow. Calculating the costs must consider the new employee’s salary, the cost of departmental and individual training, training delivery and materials, and the cost of supervisory times spent in assigning tasks and reviewing output.
Productivity loss
Upon completion of training the employee is contributing at a mere 25% productivity level for the first 2 – 4 weeks.
High turnover rates result in staffing capacity issues and stretch existing staff to meet short-term-turned-perennial heightened demands. This without doubt affects customer service and can bring upon a loss of reputation and market share.
And if you think that by employing the top dog for the job will instantly put things back into balance, you are way too optimistic. According to one research, upon completion of training the employee is contributing at a mere 25 per cent productivity level for the first 2 – 4 weeks. The cost adds up to 75 per cent of the new employee’s full salary during that time period. By 5th – 12th weeks one can expect 50 per cent productivity – a cost of 50% of full salary.
Human errors
The price tag should also be put on human errors. But not only those of a new employee; be prepared to uncover mistakes left behind by the previous staff member. The value of losses often directly depends on the motivation levels of the person in question. The mechanisms should be put in place to record and monitor the errors in such way to not to estrange your new-comer.
These indirect costs, while harder to quantify, can be substantial and be as much as 80% of the costs of turnover.
Employee turnover isn’t always a bad thing. When poor performers are laid off or leave voluntarily, turnover can be seen as an opportunity to invest in more productive and motivated staff.
Among the costs that are much harder to quantify are impact on the company’s reputation, customer satisfaction and missed sales and development opportunities.
Employee turnover isn’t always a bad thing. When poor performers are laid off or leave voluntarily, turnover can be seen as an opportunity to invest in more productive and motivated staff. Speaking of staff retention, finding excellent employees and motivating / compensating them accordingly will pay off in terms of higher productivity and lower turnover.
For more, read Revolving Door Syndrome – Staggering Costs.
