The high cost of turnover shows up on a balance sheet because it’s a considerable profitability killer. Still, a company’s bank account isn’t the only thing that takes a hit when great team members are making conscious decisions to jump ship! Just as top-down leadership and poor communication play 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 on Indeed.com called “Hidden Employee Turnover Costs: 7 to Consider” lists these:

• The hiring process
• Onboarding and training
• Productivity
• Engagement
• 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 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. Those two alone 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 robust 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. Just know that high voluntary turnover weighs heavily into both. Right now, let’s 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.

In our Leading At The Next Level program, I shared a lesson where I cited statistics about the time it takes for a new employee to be profitable. 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. 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 it still comes at a cost… These mistakes lead to work being redone in the best-case scenario, the 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 on the role type, 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 even 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 salaried employees, we take it with us on our vacation or don’t take the time off. 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 ever gets captured.

Unfortunately, it doesn’t stop there. Let’s look briefly at how this can impact our work performance and the overall company culture before unpacking specific ways to give our best team members a reason to stay.

For more on this, you're welcome to reach out to us directly at admin@dove-development.net to get a 45 Day Trial Access to our COMPLETE Leading At The Next Level program or you can check out Wes's recently released book, What's KILLING Your Profitability? (It ALL Boils Down to Leadership!) that was a #1 Best Seller on Amazon!

Over the last several years, I’ve frequently referenced this study:

According to a Gallup study, “The U.S. Bureau of Labor Statistics has found that the U.S. voluntary turnover rate is 23.4% annually. It’s generally estimated that replacing an employee costs a business one-half to five times that employee’s annual salary. So, if 25% of a business’ workforce leaves and the average pay is $35,000, it could cost a 100-person firm between $438,000 and $4 million a year to replace employees.”

While I believe that alone makes a strong point about how expensive turnover is in an organization, the cost of high turnover can be so much more—and that’s the next profitability killer we’ll address!

Nearly every time I’ve shared that with a group of leaders, I’ve challenged them to consider how even the most conservative numbers in that quote impact the profitability of their organization. Still, this only captures part of the picture. First, let’s consider how much a company’s average wage is today since the minimum wage has nearly doubled in the last two years—going from $7.25/hour to $12/hour in Virginia as I share this, with $15/hour being the widely discussed target that’s likely to be achieved sooner than later. Now let’s factor in the combination of the Covid pandemic and the “Great Resignation” that’s resulted in Help Wanted signs at just about any business we drive by or walk into on any given day. At the risk of having a flag thrown on me for piling on, think about companies like Sheetz or Walmart offering $17-18/hour as a starting wage for full-time positions combined with the significantly higher minimum wage, which all but forces companies to increase even the entry-level wage for skilled and semi-skilled roles that had been between $14-$17 per hour as recently as 2019. Oh, and we can hardly pretend that all this doesn’t spill over into every other pay range up the company ladder!

I’m convinced that $438,000 for a 100-person company, the low-end referenced in that now-dated Gallup study, no longer exists. When I see starting wages for full-time retail positions at or above that $35k annual salary in the sleepy (and beautiful) Shenandoah Valley, where the cost of living has traditionally been way lower than the larger metropolitan areas only an hour or so away, I have a tough time imagining many organizations maintaining an average salary under $50,000. And everything I’ve hit on to this point has been tied to those BLS norms. So just how much is the cost of high turnover, and how can we capture the profit it’s killing?

Before we begin working through any of that, though, let’s ensure we’re on the same page with exactly what turnover I’m referring to—because it ain’t all bad! Let’s be honest; there are times when turnover is necessary. That doesn’t mean it’s not difficult or there’s no cost involved. Still, every business will have situations to deal with where performance isn’t where it should be, or someone isn’t aligned with the culture or values. And occasionally, we get to celebrate a team member’s retirement… We won’t be addressing either of those. The turnover I’ve always been most focused on minimizing, regardless of how high it is, has been the voluntary kind, the kind where a great team member chooses to leave, and it could have been prevented. I believe that’s a significant profitability killer, and two of the things we’ve addressed recently—top-down leadership and poor communication—play a role in driving our turnover percentage up.

For more on this, you're welcome to reach out to us directly at admin@dove-development.net to get a 45 Day Trial Access to our COMPLETE Leading At The Next Level program or you can check out Wes's recently released book, What's KILLING Your Profitability? (It ALL Boils Down to Leadership!) that was a #1 Best Seller on Amazon!