Do you know the cost of employee turnover?
How many people have quit their job at your office lately? How many did quit the last year? Do you know how long it takes to replace good quality workers? Did you know that you can save money and increase efficiency by increasing your salary? I do strongly believe that money should be no object in your choice of work. And I believe if you give it your best, the money will follow. Your company on the other hand, need to be attractive in the market of the best employees, the salary do help out in this field.
Metallic White Inc
Let’s say your company: Metallic White Inc has 100 employees. The average salary is $45.000. During the last year 50 people got replaced. They either got promoted or quit. In this company it takes one month to be able to do the work good enough to do it on your own. It takes six months before you are fully effective.
The cost of replacing this person will be: $ 22500 six months of salary for the new and for the one in charge of training. The cost of replacing 50 people, costs $ 1.125.000 a year. What if you gave your employees a pay rise of $5.000? That would cost you $250.000 a year. If it reduces the turnover by 50 % you will save $562.500 a year, giving you a benefit of $312.500 a year. This is only a simple example, and the other benefit is that you will keep your employees around for much longer, increasing the all over experience by a mile. Depending of type of job, and work load you might increase productivity by 10 -20 %. A 12 % increase at my office would be equal to hiring two people. This increase in productivity has a great value not often calculated.
Other cost you would save is recruiting costs, saved time in job interviews. There is actually quite a lot to save.
Turnover Calculators.
I do code in PHP and can invent the wheel all over. But this is not necessary: Check out: http://www.hr-software.net/pages/220.htm – Find one that fits you and fill in the form and act surprised.
What is the result for your company?
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Hi Frode,
This is a very good point that you are making, the autrition rate could be greatly reduced in businesses if this calculation in employee cost and further recruitment cost was taken into account by business leaders.
A similar exercise could be done for example about finding new customers compared to retaining the customers that you already have. The ratio in cost is 70:30.
Hi James.
Retaining customers is very important. What I wonder about, is why do business leaders ignore these facts? It is a known fact, it is easy to calculate, and still they ignore it? What is going on with that?
Hi Frode,
Too many business leaders think that customer and employee retention will mean that they have to spend more money, which will affect their profits, which will affect their bonuses.
They can see no further than their nose when it comes to spending money on customer loyalty and keeping good staff.
Quite often it is the human resources department that does the calculating and they just work on numbers of people that will need to go, whether they are good or bad employees, it makes no difference to them, they have been tasked with reducing cost and that is the way they will do it.
[...] to have a high turnover among employees. There is also a link here to turnover calculators. http://www.nevermindthemanager.com/2008/08/do-you-know-the-cost-of-employee-turnover/ I will stop at five blog posts for now. The dust is making me sneeze. It is easy to see that my [...]
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