The Extended Reach of Turnover CostsApr 19, 2023
The high cost of turnover certainly shows up on a balance sheet because it’s a huge profitability killer, but a company’s bank account isn’t all that takes a hit when great team members are making conscious decisions to jump ship! Just as top-down leadership and poor communication plays a part in so many other areas of how a business operates, high voluntary turnover impacts far more than just the need to stick a NOW HIRING sign along the street in front of the building…
An article I found in Indeed.com called Hidden Employee Turnover Costs: 7 to Consider lists these:
- The hiring process
- Onboarding and training
- Morale and company culture
- Work quality
- The time the role is empty
In far too many cases, the only costs I’ve seen organizations consider with turnover are those tied directly to the hiring process - and even then it’s usually just the expenses that have been paid to an external source; a recruiter, a newspaper or hiring platform, the background check and/or drug screen fees, etc. I’ve rarely seen a company calculate the internal costs tied to the time invested in creating the job post or screening candidates. Just those two can be significant even before considering the other six on that list…
In the fourth lesson of our Recruitment, Retention, & Culture course, we cover the importance of a strong onboarding process (not to be confused with the few minutes many businesses dedicate to what they call “orientation” on an employee’s first day), and the financial impact effective onboarding can have, so I won’t hash all of that out again here. We’ll also go into specific detail later on showing how much profitability is killed by poor engagement and low morale, but just know that high voluntary turnover weighs heavily into both. Right now, let’s just stick with how this particular profitability killer spills over into productivity, work quality, the impact of an empty role, and how those things always reach the customer we’re serving.
A while back in our Leading At The Next Level program, I shared a lesson where I cited some statistics about the time it takes for a new employee to be profitable in their role. In short, the study I referenced showed that the break-even point for an organization hiring someone new was usually around six months; meaning that that team member was costing the company money until that point - just on their individual productivity. Truth be told, there was even more cost involved when you consider that anyone training them also lost productive time.
Additionally, which employees are most likely to make quality-related errors? I realize this is part of the training curve but this still comes at a cost… These mistakes lead to work being redone in a best case scenario, product being scrapped in many cases, or even an inferior product or service reaching our customer - which generally has a far higher long term cost than either of the other possibilities!
So what about costs related to the role being empty? Depending what type of role it is, it could take weeks or even months to find the right person in the best of times. But when voluntary turnover is already high, this is even more difficult and tends to stretch the time out ever longer. What happens to the work during this time? If you’ve ever been in a salaried role and had several weeks of paid time off left over at the end of the year, you know where I’m going with this; the work still HAS to get done… As a salaried employee, we either take it with us on our vacation or don’t take the time off at all. When a critical position is empty, that work lands on someone else’s desk - someone who already has a full plate… Sometimes those folks absorb it by working extra hours but other times things fall through the cracks. Either way, this is an added cost of turnover that hardly even gets captured.
Unfortunately, it doesn’t stop there. We’ll touch briefly on how this can impact our own work performance as well as the overall company culture before unpacking specific ways we can give our best team members a reason to stay.