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The True Cost Factors of Employee Turnover

Recently I was in a conversion with an executive about the cost of turnover in his organization and realized this executive had no understanding to the true cost of his turnover problem. If you are only looking at the salary loss or replacement, then you are short sighted on the other factors involved.

Yes, salary lost is the main factor as is the benefit packages you offer to your employees. Then there are another eight factors to look into when calculating the true cost of turnover. These factors can be quite large when you get them all added up. And, you need to know the true cost of employee turnover – if you want to get motivated to proper fix the problem.

Here are the Eight Factors involved in Employee Turnover…

  • Time to Fill the Position
    During this period of economic downturn and high unemployment rates, most managers figure it is easy to find job candidates. Well, this is both right and wrong. Let me explain – Yes, there are a large number of unemployed candidates in the employment line today. And, No, there is no guarantee you will find the right or Qualified candidate quickly. Here is where patience to find the right person is extremely important and the least understood. Get the right Qualified people on your team and increase your productivity and performance.
  • Wasted Management Time
    The time hiring managers and line managers devote to the hiring process can be very expensive in the long run. Think about the total number of managers involved in the hiring process and their respective per hour pay range. Make no mistake however, these managers need to be involved in the interview process to ensure the right people are getting offered positions in your organization.
  • Distracted Time Members with Loss of Productivity
    Now this is one most people miss, yet, it can be expensive if not addressed quickly. Research is showing a 30 to 40% loss of productivity when team members are distracted due to unhappy team members or missing team members which create more work for each remaining member or employee dissatisfaction leading to other issues in the department or work group.
  • Lost Customer or Opportunities
    While this is an area usually reserved for sales positions, it can other positions. Think about a product specialist, a research & development person or a marketing person working on a major project. I have also seen a situation where only one person knew how to operate a critical production machine – turnover created a series of lost opportunities due to late deliveries from the production line.
  • Legal Fees and Background Checks
    The higher the position the more these costs come into play, yet, even in lower level positions you still have background checks and drug testes. These are all expenses and must be accounted for in your expense totals.
  • Cost of Recruiting and Interviewing Expense
    The cost of screening all the candidates who apply for a position can add up. I have seen over a hundred applications for one position. This takes time and time is money. Add in a phone interview for preliminary screening of candidates and more time and effort is added to the expense list.
  • Loss of Knowledge
    This is a really big issue and yet the most overlooked of the big eight. What is the true cost of the lost of knowledge, expertise and process or customer information. Just looking at the customer issue alone, it is a known concern on the part of customers – they do not care to take the time to educate new hires and it is always an issue for them. The uncertainty of working with someone new, can they trust this person? Relationships can be lost which is very expensive.
  • Training or On-Boarding Costs
    This is more of a forgotten expense yet necessary for getting high performance standards from the new hires. Training can be elementary such as basic orientation or advanced process or systems training. And, a professional on-boarding package can assist the new hires to get engaged in a high performance culture faster – which increases the return on investment of the hiring system.

There you have the Big Eight in addition to lost salary and benefits. Remember these numbers can add up into large numbers which places a sense of urgency into improving the retention rates of your current hiring and selection practices. Do you currently have a system in place ensuring you are matching talent traits to the actual job or position traits needed. If not you will continue to have higher turnover rates than necessary.

Make your organization more productive using a true hiring and selection system designed to place the best candidates in each position. If you have no professional hiring system in place, then give us a call and we can discuss your options and what your return on investment will be when you choose to do something about turnover.

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Voss Graham

CEO / Sr Business Advisor at InnerActive Consulting Group Inc
Voss Graham is an Organizational Architect with 30+ years of experience designing sustainable business growth for organizations of all sizes. Creating the Strategic Focus with the Executive Leadership Teams, he uses Systems & Process to ensure the Drivers for Business Growth are Executed at the Highest Levels. Voss is available as a Speaker for your conferences or company meetings - contact him at 901-757-4434 or use the LinkedIn or Facebook direct messages.

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Voss Graham

Voss Graham is an Organizational Architect with 30+ years of experience designing sustainable business growth for organizations of all sizes.
Creating the Strategic Focus with the Executive Leadership Teams, he uses Systems & Process to ensure the Drivers for Business Growth are Executed at the Highest Levels. Voss is available as a Speaker for your conferences or company meetings – contact him at 901-757-4434 or use the LinkedIn or Facebook direct messages.