Sometimes you can have your nose to the grind so long, that the challenges you face become expected and normal. There’s never a truer sentiment for HR professionals who spend 100s of hours recruiting, hiring, and training a new employee, only to find him slip out the back door within 6 months. The employee leaves, and they put their nose back to the grind again to find a replacement. It’s a process that has become the norm in today’s workforce, a simple cost of “doing business” in the market. It’s not that the effort isn’t there, in fact, there’s extraordinary effort happening. But with low retention having flooded the market, it’s important to understand the real cost of high employee turnover. Sometimes when you understand the true cost of something, you can begin to address the issue from a different perspective, or if at the very least with some urgency.
Most companies don’t have systems in place to measure retention or turnover. Typically they just see holes where people once were, and with the fast-pace of today’s environment, they move as fast as they can to find qualified candidates. There are costs associated with recruiting, interviewing, hiring, and training, and that’s just in the first phase of employment. At the end of employment, there are costs relative to the exit itself, lost productivity, potential customer dissatisfaction, reduced or lost business and more…all to get back to the cycle of recruiting. These costs have both a financial marker, and other ramifications that impact an organization.
Here is where high employee turnover is hurting you more than you realize:
In The Bank Account
As significant as losing money is for companies, the numbers still don’t seem to be enough to shake the current state of awareness regarding the true cost of employee turnover. Perhaps its because, as stated above, most companies don’t have a system to measure the actual cost. However, here are some real numbers to show what happens when an employee leaves.
According to an article by ERE Media
- For entry-level employees, it costs between 30-50 percent of their annual salary to replace them.
- For mid-level employees, it costs upwards of 150 percent of their annual salary to replace them.
- For high-level or highly specialized employees, you’re looking at 400 percent of their annual salary.
According to an Allied Workforce survey, to fill one position costs on average $10,731. If you have someone who is relocating to join the company, you can add an additional $21,033 per new hire for relocation. That’s a sounding call for every company, regardless of its size, to do all it can to leverage their new employees, as recruiting and relocation costs can average more than $30,000 per hire.
In The Culture
Peter Drucker is famous for his quote, “Culture eats strategy for breakfast.” And while this is a hot-topic of conversation today, the reality for most businesses is that they often find themselves so caught up in the daily minutia of running a business, that the culture is formed by default. A culture formed by default will rarely be a culture driven by purpose. So when a culture is formed by the whims of the emotions, thoughts, opinions, and actions of everyone, disaster strikes. Working relationships become strained, particularly between employee and manager. The lack of direction and unity within the team leads people to leave. Quite simply, when people start leaving, everyone stops to ask why. And this is when you begin the downward slide into a further degenerating culture. Most people don’t like being a part of dysfunction, and there’s nothing that will get someone out the door faster than a bad culture. The opposite is true as well, many people will stay in less-than ideal situations when the culture is great. While high turnover is typically a symptom of a struggling culture, it also serves as a double-edged sword, creating further negative effects every time someone else leaves. A high employee turnover can be at the very least, costly to a company, and at the worst, ultimately catastrophic, driving the company out of business.
In the Collective Wisdom and Experience “Pool”
Another place you’re hurting from high employee turnover is in the collective wisdom and experience “pool” that your team provides. Whether you have someone who is fairly new or has been around for awhile, every time you lose someone, you also lose their expertise, experience, productivity, and…wisdom. This process is what I’ll call, “Wisdom Withdrawal”. Granted, some turnover must happen because someone is not demonstrating the ability to perform the job they’ve been hired to do. But too often, because of a negative culture experience, great potential leaders will leave for more promising opportunities. And truly, the unique experiences and wisdom of an individual is something that you cannot replace. You may find someone else who does the job well, but you cannot replace an individual’s imprint he or she may have on the company. Consider that it can sometimes take 1-2 years to get a new hire up to the productivity level of someone who has been there for many years. The value of someone’s wisdom being withdrawn from the team has far reaching effects that can’t adequately be measured.
Finding a way to bolster retention is paramount for today’s HR personnel and their respective organizations. With mounting costs both financially and culturally, it’s imperative to understand the real costs that high employee turnover has on your business. It will save you money, protect your culture, and lead you into the future!