People Smartz

The Cost of Losing Employees

Tony Perkins - Monday, July 27, 2009

I have met with a potential client in the last couple of weeks, who was not concerned over the level of turnover he was experiencing in his business. His turnover levels were around 50% a year and he had managed his business on this sort of rate for many years - his comment to me was that it was just what happened in his industry.

Well a little bit of research did tell me that turnover was high in this particular industry, but 50% was almost double the industry average!

Unfortunately for this gentlemen I needed to point out to him the cost of this turnover to him in time, effort, experience and, of course, profit.  When they were calculated, to say he was shocked is an understatement!

The actual cost of replacing an employee can be calculated at somewhere between 50% and 200% of an employees salary.  This amount is a result of the time and effort required for recruiting (advertising, shortlisting, interviewing, time for all of the above), the loss of productivity, the cost of training new employees and many other, incidental, factors.

But high turnover can also be an indicator of other problems with your business - and with the cost of replacing employees, these can not be ignored!

Some hints for improving your turnover rate are as follows:

  1. Hire the right people - not just in terms of qualifications or experience but also in terms of motivations and values.  Attempt to ascertain the drivers of your potential employee prior to employment and make sure you can meet them before offering them a job.
  2. Remember those motivators as you deal with them during their employment - these are the things that are going to keep them interested. For example - people who are goal/career motivated need to be treated differently to people seeking security.
  3. Our workforces today are more mobile - acknowledge this and find ways of making it work for you.  If a person feels it is time to move on, then find ways to make it easy on you and them. 
  4. Find ways to improve communication and continuously improve the workplace.  Keep your employees engaged by involving them in developing their own goals and targets.  Communicate your goals and targets for the business - don't keep them in the dark!
Reducing turnover is a long term goal but worth it in terms of your time, effort and profit.  If you require assistance, People Smartz can provide you with a number of services to improve your results.  Contact us today!

Comments
Karen Schmidt commented on 20-Oct-2010 05:27 PM
Why do some employers insist on treating their people like disposable objects? If you killed 50% of the plants in your garden you would be seriously looking at what you were doing wrong but lose that many people and you think it is normal?
Sarah Winwood commented on 21-Oct-2010 07:56 PM
Hi Karen

I agree....

Since writing this article, the person in question has gone out of business. He was also the subject of a couple of complaints regarding non-payment of entitlements.

In a way, I am pleased to say that I did very little work with him. Generally I did not like his attitude to his people or his business.

Cheers

Tony
Steve Pieper commented on 09-Nov-2010 08:54 AM
We've seen a bit of the same phenomenon - business owners and HR folks are still somewhat in survival mode, though the job market is starting to loosen. They're reluctant to restore benefits and pay back to pre-recession levels, but I think there's a shock in store in the form of an employee retention crisis. Inc, HR Magazine, and Talent Management are all talking about it, as well.
Tony Perkins commented on 09-Nov-2010 04:44 PM
Thanks for the comments Steve!

Thankfully, Australia's experience in the GFC was not as bad as yours in the U.S.

I agree with you regarding employee retention. As we move out of the GFC and things improve, the security factors that might of retained people in a certain role will begin to diminish. This will lead to greater mobility and retention issues for businesses.



Andrew Hibbard commented on 06-Dec-2010 04:33 AM
Good post. For those who have never done the analysis, the initial realization of actual turnover costs can be a sobering and even alarming wake up call. That said, some turover can actually be healthy for the organization. So, in addition to the usual "voluntary vs involuntary" measures, it is a useful diagnostic to look at "undesirable" turnover. If your stars are leaving, you really have a problem!
Javier Dominguez commented on 17-May-2011 04:44 PM
Great article re retaining workforce. I have the privilege of working for one of the best training organisations in Australia and believe me, losing an employee is the last thing you want your business to suffer. Retain and train your people, that leads
to competitive advantage. Thanks for the post.
Guy Farmer commented on 24-May-2011 06:09 AM
Great post Tony. Leaders have a lot of power over whether they view their employees as expendable or as valuable. I've found that those who invest in their employees' growth and well-being create happier, more successful organizations.

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