Do You Know The Cost To YOUR Company’s Bottom Line for Employee Turnover or Retention?

There is lots to be said about this subject and there has many numerous studies to back up what I’m about to tell you.  But please take heed because the bottom line affect is a serious number when it comes to employee retention/turnover.

First let us examine three sets of numbers and/or scenarios;

1.       The average costs to replace an employee, based on at least a dozen different studies range from 25 – 50% of the annual compensation for entry level; 140 – 165% of middle level; and a range of four to five times for executive and/or specialty employees.

a.       The Society for Human Resource Management (SHRM) is the most conservative for hourly employees.  Their numbers state an average cost of $3,500 to replace ONE $8.00 per hour employee!  Most other studies are in the $5,000 to $6,000 range.

b.      Now consider a middle range employee, with an annual compensation of $50,000 and the cost to you at 150% is a staggering $75,000 per employee!

c.       And finally, an executive at a $150,000 compensation level, the cost could easily reach FOUR TIMES that number!

2.       You might ask yourself, what costs were considered to reach these numbers and that would be an excellent question.  The detailed version can be found on my website as a PDF download titled:  How Do I Calculate the Cost of Employee Turnover?

3.       The short version includes the following costs: 

a.       Hiring

b.      Training

c.       Recruiting

d.      Orientation

e.      Interviewing

f.        Termination

g.       Administrative

h.      Lost Productivity

i.         Customer Dissatisfaction

j.        Reduced or Lost Business

k.       Compensation and Benefits

Although this is an intrinsic cost of doing business, it doesn’t have to be quite so painful.  Once it is determined the actual costs your company will be forced to shoulder, you should explain these numbers to your managers. Not only will it give them a tool to be better managers, but you can use it as a point measurement with reference to goals, leadership and performance.

I’ve always been a believer that in most cases it is better to develop a plan to save an employee than to just escort them to the door.  Average performers need the opportunity to become top performers.  And those who are deemed to be below average should have the same opportunity to embrace a growth plan or they should be replaced.  Warm bodies need not apply!

So here you have it, life in the real world or Employee Retention/Turnover/Finance.  Do your own simplified calculations or go to my website and get a more detailed explanation of the costs.  And don’t be surprised if this subject becomes a line item on your next P & L.  
George F. Mancuso, CPC, CEO
Client Growth Consultants, Inc.