High employee turnover for a company is a huge underlying problem that is not so tangible, making it more difficult to address. Many companies do not have systems in place to measure the true costs and the indirect costs are much higher than most would think.
Individually, it costs between $4,000-$14,000 to replace an hourly employee, and upwards to $40,000 to replace a manager. One Silicon Valley company estimates the cost of replacing an employee is over $125,000¹.
Leading Companies Accept Employee Turnover as Normal
While many leading companies place more effort on employee retention, many remain clueless. They accept employee turnover as a normal part of doing business. High employee turnover organisations spend disproportionate amounts of resources on recruiting and replacing their workforce, while smart organisations invest in employee retention.
Yes, there is going to be employee turnover no matter what you do, but blindly ignoring the reasons—and NOT actively working towards improving retention—shows a lack of foresight and is an expensive mistake.
When the employee turnover statistics are high in an organisation, it is a huge cost for a company. Figures show that the cost of employee turnover will easily reach 150% of the employee’s annual compensation figure. This cost will be significantly higher (200% to 250% of annual compensation) for managerial and sales positions.²
To put this into perspective, let’s assume the average salary of employees in a given company is $50,000 per year. Taking the cost of turnover at 150% of salary, the cost of turnover is then $75,000 per employee who leaves the company. For the mid-sized company of 1,000 employees who has a 10% annual rate of turnover, the annual cost of turnover is $7.5 million! This includes:
- Costs due to person leaving
- Recruitment costs (both internal and external)
- Training costs
- Lost productivity costs
- New hire costs
- Lost sales costs
Therefore, it is very cost effective for a company to invest in the retention of its staff and developing people within the organisation. The return on investment on the development and retention of staff can range anywhere from 30 percent to 7000 percent, depending on the parameters chosen to measure.³
To keep the figures conservative, we’ll say the average ROI is 30 percent. There are countless studies that prove an effective strategy to increase profits and productivity are to actively work with retaining and developing great employees. The investment into an employee engagement or recognition programme can be anywhere from one to three percent of an employee’s annual salary. How much is employee turnover and lack of engagement costing your organisation? How much is it worth to you to improve the performance of your staff, to develop new talent, and retain top talent?
With the Evoloshen System, the steps are mapped out in a way that is easy to follow and implement within an organisation. Whether you choose to follow this system or work on your own, taking the decision to invest the time, money, and effort to creating an Amazing Company—that is a highly engaged organisation, is the first step to reaching new levels of business that will far exceed your expectations.
Karin Volo, an expert in engagement, career, personal and organisational development, is known as the Evolution Expert. With over 15 years experience working with executive search, leadership mentoring as well as professional inspirational speaking. Karin is the co-author of ENGAGE! You can find out more about Karin and how to create an Amazing Company at www.Evoloshen.com.
¹Smith, Gregory P. The Cost of Employee Turnover, PHCC Educational Foundation, July 9, 2007.
²Turnover (employment) Wikipedia. Retrieved from http://en.wikipedia.org/wiki/Turnover_%28employment%29
³New Research Shows Training Yields Major Benefits to Business, National Centre for Vocational Education Research, December 11, 2001.
