The Extended Reach of Turnover Costs
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.
Taking the Wind Out of Our Sails…
So imagine you’re overseeing a team of folks with an incredibly high workload to produce for your customer and it seems like all you can get done is interview, hire, and train new employees. Some of the ones coming on board connect with the team and stick around but a high number never stay long enough to really learn their role or reach a reasonable level of productivity. The only option at that point is to start the process over again, then again… As leaders, we’ve got so many other responsibilities to see through that this is pulling us away from. Talk about taking the wind out of our sails, right? I wanted to call this part Sucking the Life Out of Us but I thought that may have been a bit much - regardless of how painfully accurate it truly is!
If we’re really going to consider the extended reach of turnover costs, we can’t overlook the impact it has on employee engagement or how that impact on employee engagement can drive even higher turnover! We’ll go into the specific details of just how big of a profitability killer poor employee engagement is soon enough so I’m not going to hash out the data here. What I do need you to consider though is how high turnover begats low employee engagement and low employee engagement begats high turner. Then guess what that begats… Truth be told, I believe this kind of begatting could also cover as many generations as from Adam to Noah! (Start at the beginning of the Book if I’ve lost you with this reference…)
As we looked at who pays the price for high turnover, I emphasized that I’m convinced that it’s everyone connected to the organization - internally or externally! The biggest part of this challenge though often falls squarely in the lap of those of us supervising, managing, or running the business. While we’re certainly not the only ones who feel the effects of the high turnover, it adds to our workload in ways other team members often don’t realize. A while back, I wrote an article on LinkedIn comparing employee happiness, employee satisfaction, and employee engagement and received a comment soon after from someone stating that all of them are almost always fuzzy initiatives driven by someone in human resources that never yield tangible results because the “most CEOs continue to sit on the sidelines and let HR wack away at the problem.” If the leaders in an organization are willing to place complete responsibility for turnover or employee engagement solely on whoever carries a human resources title, then I’d expect it would all likely remain “fuzzy”... And I’d also expect turnover to remain high (even within the human resources department), employee engagement to remain low, and a ton of profitability to be lost. Failing to accept responsibility for tracking tangible results from any initiative is a profitability killer that probably warrants our attention soon too!
Since my goal right now is to point out how the high turnover yielding low engagement yielding high turnover perpetuates itself, I’ll just challenge you to consider how much this spills over into every single team member around us. As leaders, we’ve prepared ourselves to handle tough times; it’s part of the job… Just imagine how that downward spiral takes the wind out of the sails of a team member who hasn’t yet prepared themselves for things like this and likely isn’t as bought into the organization as we are. As these two things continue begatting each other, the amount of profitability that’s lost compounds and we’ll soon see it take a toll on our culture and our values.
The extended reach of high turnover certainly does its part in taking the wind out of our sails when it comes to how actively we are in driving our organization forward but it also takes a toll on our entire organization’s culture - in a couple of critical ways!
Before we go into those ways, I want you to think about what it would feel like to be on a ship in the Caribbean (because the water’s just beautiful there) and you see dozens of people jumping overboard. The ship doesn’t appear to be sinking and you haven’t heard an alarm or announcement pointing to any immediate danger, but I’d guess you’d still be wondering what was going on! What’s causing so many people to make such a drastic decision? As time passes, there’s still a steady stream of folks grabbing whatever they can find to help them stay afloat as they go over the side and into the ocean. Sooner or later, even the best of us will wonder what they know that we don’t…
For the ones of us who stick it out, changes are inevitable. The buffet lines won’t be as long and it will be a lot easier to find a seat by the pool, but we’ll likely inherit a few things that are less desirable too - especially if many of the folks who took the plunge were part of the crew! We could even find ourselves in a spot where we’re cooking the meals or steering the ship!
When turnover is high in an organization, it’s not all that different. Responsibilities can change quickly and work can pile up fast, causing significant pressure to fill open spots with just about anyone who appears remotely qualified. That can make a significant difference in the culture in a really short time, and depending on which roles those remotely qualified folks fill, there could be some mismatches with the organization’s long standing values! And not only can new folks coming in create a dip in what the company had previously been known for, the drop in morale among the ones who are still there can weigh just as heavily. The longer high turnover continues, the farther the company can move from what had been a robust history of maintaining a top-notch culture with strong values and become a place that accepts nearly any warm body that applies.
Just like high turnover begats poor engagement and poor engagement begats high turnover, the same downward spiral can be seen with how turnover affects a culture as well as the values that culture was built on! While this also spills over into the recruiting process, a profitability killer we’ll look at closely soon enough, an intentional approach to providing team members a reason to stay is often one of the best investments we can make. Moving forward, we’ll work through some very specific things we can do to reduce voluntary turnover so we’re capturing all that unnecessarily lost profit - and so we can increase engagement while we uphold our strong values to build an even stronger company culture!