Quantifying the Costs of Voluntary Employee Turnover

Quantifying the costs of voluntary employee turnoverAccording to the U.S. Bureau of Labor and Statistics, the U.S. voluntary employee turnover rate is 23.4%.  That means on average, 1 out of 4 employees choose to leave their company each year. Is your company’s voluntary turnover rate above or below this average?  Have you ever sat down and calculated the actual cost of turnover?  Chances are high that the total impact to your company’s checking account is WAY more than you imagined!

Start by adding up hiring expenses

Wouldn’t it be great if hiring a new employee was easy to do and took zero time? Unfortunately, it costs both time and money.  This is typically the least expensive component of calcuating employee turnover and these expenses include: (1) recruiting costs – external recruiter or internal HR department (2) interviews – leaders, managers, employees are taking time out of their day to conduct interviews and (3) new employee orientation and onboarding.

Don’t forget to accumulate the hard costs of lost productivity

These costs begin accumulating on the day that your former employee left the buidling… So who’s doing the work that used to get done?  Spreading the workload sounds easy but does it lead to overbearing stress and additional employee turnover due to burnout?  What does this unintended consequence cost your company each year?

Also, don’t forget the achievement gap.  Typically, a new employee is ½ as productive as their predecessor. So during the ramp up period, which can take several months to over one year, it take two employees to be as productive as the person they are replacing.

Remember that longevity matters in the world of high-touch professional services

People who seek professional services do not like unexpected employee turnover from their provider. Imagine going to a different accountant, attorney, dentist, doctor, money manager or wealth advisor every year! How long would you put up with the revolving door of “experts” before seeking more stability from another place of business?

Think about employees as assets to your company that have value

If you believe employees are simply a cog in a machine that are easily replaceable, try firing everyone and rehiring for each position. Now imagine doing this every year. How long would your company be in business?  If your company offers any form of professional service, the answer is “not very long!”

Here’s the bottom line

Business owners that have figured out how to hire the right people up front, successfully onboard new team members and retain them for longer than their competitors dramatically increase the likelihood of building a very successful company. On this specific measure of performance, how is your company doing?  To get incrementally better as a business owner, start working on a plan to reduce the cost of voluntary employee turnover and in the process, you’ll find running your company to be a lot more fun and profitable.  In turn, your clients and employees will thank you too!

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