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Creating High Performance Business Cultures Through Strategic Selection, Development and Retention of Top Talent.
Employee Retention...How Much is Your Employee Turnover Costing You?
Companies have a tremendous investment in each employee. Replacing any employee who leaves is costly.
Just how costly may shock you. And that's good. Because once you understand the costs, you'll better understand the need to hold onto employees like gold.
In the big picture, turnover really adds up
Not a big deal to replace an employee earning $8.00 per hour? Studies differ, but they show replacement costs at about one-third to one-half of an hourly worker's annual earnings for a conservative average of about $5,500!
Turnover costs for salaried positions easily reach 150% of annual compensation – and it is much higher (up to 200%) for managerial and sales positions. (For an in-depth study, visit www.sashacorp.com/turnframe.html.)
Your organization's actual costs could be more or less, but when you consider a typical 10% annual turnover rate, the money that walks out the door can add up significantly.
Profit-robbing turnover – two examples
1. Say that everyone in a 100-person firm earns $8.00 per hour and that per-employee turnover costs are a very conservative $5,000. Your 10% turnover is costing you $50,000 per year, all of which impacts your bottom-line. A 1,000-person firm would spend $500,000 needlessly. Ouch!
2. In a hypothetical firm of 100 salaried employees earning an average of $50,000 annually, that 10% turnover rate removes $750,000 from the bottom line. For the 1,000-person firm, $7.5 million evaporates!
We bet you could find a better use for that kind of money.
Exactly where turnover costs are hiding
Employee turnover costs vary among companies and positions. However, costs are typically found in six main organizational areas. A partial list in each area follows.
Recruitment Costs
• Advertising and/or employment agencies
• Human resource management, recruiter and assistant time involved in the entire hiring process (the cost of handling, processing and responding to resumes alone is calculated at $1.50 per resume)
• Candidate drug screenings, background checks and reference checks – including cash outlays if these tasks are outsourced
• Pre-employment assessments
Administrative Costs
Departing employee:
• Resignation process including exit interviews
• Stopping payroll, benefit deductions and benefit enrollments
• COBRA notification and administration
• Severance and benefits continuation
• Management time spent on planning and reapportioning interim work loads
• Unemployment insurance premiums and perhaps time spent on unemployment hearings, or third party fees for handling the unemployment claims process
New hire:
• Payroll process
• Computer/ security processes
• Publicity/media announcements
• Credit card account process
• Management time spent building trust and confidence in the new employee's work
Operational Costs
In the interim:
• Temporary hires – pay plus lower productivity
• Extra workload for existing employees – can result in overtime pay and reduced departmental productivity
• Lost customers, knowledge, skills and contacts that departed employees may take with them – particularly true of sales and customer service personnel – often valued at 50% of the person's annual salary for one year of service, with 10% increases for each additional year
New hire:
• Materials and services such as business cards, phones and automobiles
Training Costs
Departed employee:
• Lost training investment – time and paid education costs
New hire:
• Orientation process, including trainer time and the new hire's salary
• Job training/education and materials, including the trainer's time, the new hire's salary and possible licenses or certifications
• Supervisory time spent assigning, explaining and reviewing work assignments and output
Productivity Costs
• New-hire learning period, including mistakes and inefficiency
• Manager/coworker time spent helping the new employee and time taken away from daily tasks
• Impacts on critical projects if the departed employee was a key participant
• Manager downtime in the case of a departed key employee such as an assistant
• Reduced work performance, missed deadlines and weakened employee morale
• Department-wide performance losses when a manager departs
Guidelines for calculating lost productivity:
• Studies peg weekly productivity losses at a minimum of 50% of the vacant position's compensation and benefits – the number can reach 100% for long-term vacancies
• During weeks 2 to 4, the new employee typically contributes at a 25% productivity level – for a cost of 75% of salary
• Weeks 5 to 12: productivity is 50% -- for a cost of 50% of salary
• Weeks 13 to 20: productivity is 75% -- for a cost of 25% of salary
Sales Costs
• Lost revenue – sales revenue may simply be lost during the time of the vacancy and may be lost permanently if the departed sales person brings accounts with him/her
• Lost productivity and revenues as the new hire comes up to speed
• Damaged customer relationships or credibility.
• Weakened ability to generate revenue organizationally even when non-sales staff depart
So, what's the solution?
Be proactive!
Implement a systematic approach to recruiting, hiring and developing top talent – and virtually halt unwanted turnover. By retaining the best people, you'll have a more competitive and profitable organization. With such a system in place, ROI can easily reach several hundred percent within the first year.
Zero Turnover Hiring creates customized recruiting and hiring systems and on-boarding programs that work. Especially during challenging economic times, having the best people, low turnover rates and increased productivity provide significant competitive advantage and profit potential.
Contact Brint Driggs at 972-562-5444 or brint@zeroturnoverhiring.com to learn how such a program can benefit your company.
Just how costly may shock you. And that's good. Because once you understand the costs, you'll better understand the need to hold onto employees like gold.
In the big picture, turnover really adds up
Not a big deal to replace an employee earning $8.00 per hour? Studies differ, but they show replacement costs at about one-third to one-half of an hourly worker's annual earnings for a conservative average of about $5,500!
Turnover costs for salaried positions easily reach 150% of annual compensation – and it is much higher (up to 200%) for managerial and sales positions. (For an in-depth study, visit www.sashacorp.com/turnframe.html.)
Your organization's actual costs could be more or less, but when you consider a typical 10% annual turnover rate, the money that walks out the door can add up significantly.
Profit-robbing turnover – two examples
1. Say that everyone in a 100-person firm earns $8.00 per hour and that per-employee turnover costs are a very conservative $5,000. Your 10% turnover is costing you $50,000 per year, all of which impacts your bottom-line. A 1,000-person firm would spend $500,000 needlessly. Ouch!
2. In a hypothetical firm of 100 salaried employees earning an average of $50,000 annually, that 10% turnover rate removes $750,000 from the bottom line. For the 1,000-person firm, $7.5 million evaporates!
We bet you could find a better use for that kind of money.
Exactly where turnover costs are hiding
Employee turnover costs vary among companies and positions. However, costs are typically found in six main organizational areas. A partial list in each area follows.
Recruitment Costs
• Advertising and/or employment agencies
• Human resource management, recruiter and assistant time involved in the entire hiring process (the cost of handling, processing and responding to resumes alone is calculated at $1.50 per resume)
• Candidate drug screenings, background checks and reference checks – including cash outlays if these tasks are outsourced
• Pre-employment assessments
Administrative Costs
Departing employee:
• Resignation process including exit interviews
• Stopping payroll, benefit deductions and benefit enrollments
• COBRA notification and administration
• Severance and benefits continuation
• Management time spent on planning and reapportioning interim work loads
• Unemployment insurance premiums and perhaps time spent on unemployment hearings, or third party fees for handling the unemployment claims process
New hire:
• Payroll process
• Computer/ security processes
• Publicity/media announcements
• Credit card account process
• Management time spent building trust and confidence in the new employee's work
Operational Costs
In the interim:
• Temporary hires – pay plus lower productivity
• Extra workload for existing employees – can result in overtime pay and reduced departmental productivity
• Lost customers, knowledge, skills and contacts that departed employees may take with them – particularly true of sales and customer service personnel – often valued at 50% of the person's annual salary for one year of service, with 10% increases for each additional year
New hire:
• Materials and services such as business cards, phones and automobiles
Training Costs
Departed employee:
• Lost training investment – time and paid education costs
New hire:
• Orientation process, including trainer time and the new hire's salary
• Job training/education and materials, including the trainer's time, the new hire's salary and possible licenses or certifications
• Supervisory time spent assigning, explaining and reviewing work assignments and output
Productivity Costs
• New-hire learning period, including mistakes and inefficiency
• Manager/coworker time spent helping the new employee and time taken away from daily tasks
• Impacts on critical projects if the departed employee was a key participant
• Manager downtime in the case of a departed key employee such as an assistant
• Reduced work performance, missed deadlines and weakened employee morale
• Department-wide performance losses when a manager departs
Guidelines for calculating lost productivity:
• Studies peg weekly productivity losses at a minimum of 50% of the vacant position's compensation and benefits – the number can reach 100% for long-term vacancies
• During weeks 2 to 4, the new employee typically contributes at a 25% productivity level – for a cost of 75% of salary
• Weeks 5 to 12: productivity is 50% -- for a cost of 50% of salary
• Weeks 13 to 20: productivity is 75% -- for a cost of 25% of salary
Sales Costs
• Lost revenue – sales revenue may simply be lost during the time of the vacancy and may be lost permanently if the departed sales person brings accounts with him/her
• Lost productivity and revenues as the new hire comes up to speed
• Damaged customer relationships or credibility.
• Weakened ability to generate revenue organizationally even when non-sales staff depart
So, what's the solution?
Be proactive!
Implement a systematic approach to recruiting, hiring and developing top talent – and virtually halt unwanted turnover. By retaining the best people, you'll have a more competitive and profitable organization. With such a system in place, ROI can easily reach several hundred percent within the first year.
Zero Turnover Hiring creates customized recruiting and hiring systems and on-boarding programs that work. Especially during challenging economic times, having the best people, low turnover rates and increased productivity provide significant competitive advantage and profit potential.
Contact Brint Driggs at 972-562-5444 or brint@zeroturnoverhiring.com to learn how such a program can benefit your company.
