The word turnover means more than a number calculation. Losing good employees is one of biggest drains on a company’s bottom line, yet organizations consistently overlook or miscalculate what it truly costs. A Cost of Turnover analysis that gets to the bottom of what really matters – what turnover costs, why it costs, and how to fix it — goes beyond simple multiplication and division. Through a better understanding of these 3 hidden factors, organizations can turn up the employee motivation and turn down the cost of employee separation.
The Need for Cost of Turnover Analysis
The impact of turnover reaches far, ranging from measurable, direct impact on the bottom line to indirect costs such as employee theft, reduced reputation, and loss of customers. For organizations who want to improve profitability by putting an end to this costly issue, awareness of the problem is Step #1 in turning down turnover costs.
There are 3 ways companies typically handle Cost of Turnover:
- Operate in denial or unawareness of it
- Acknowledge that turnover exists but do not take action to predict or prevent it
- Launch programs to address it without taking the time to diagnose the root causes. These organizations may unlock some talent management potential by guessing, but they have to dig deeper for real, sustainable results.
If a Cost of Turnover analysis offers such important benefits, why do most companies avoid the time and energy to understand it? And why do interventions fail?
Not All Cost of Turnover Analyses Are Equal
A true Cost of Turnover Analysis unearths the hidden factors that escalate into thousands, and sometimes tens of thousands, of dollars per person. It would also compare the cost of turnover by location, department and/or job function. At the same time, it takes into account the unique specifications of a company’s size, industry and business type. An experienced employee retention expert can detect the influences in play that confounding factors may conceal or blur. For this reason, not all Cost of Turnover calculators are equal.
Calculations are only as good as the analyst’s understanding of the subject. Cost of Turnover calculations fail for a few reasons. They often miscalculate by failing to take the most relevant industry-specific factors into account. Or, they may focus too heavily on cluttering inputs that do not truly impact the business. Lastly, the variables included may not go deep enough. Employees’ fear of consequences, even subconsciously, can often cover up the truth. The result? Much ado about nothing: novice calculations that yield weak insights incapable of framing any meaningful response.
The solution? Put down the pen and paper and devote time to listening and observation. Take the time to map the employee experience and how an individual joins, stays, and leaves. Then apply this understanding to determine which elements to include in your Cost of Turnover calculations. Here are 3 factors that a highly trained, acutely observant analyst will catch.
Hidden Factor #1: Messing Up the Mojo
A magical charm exists in high performance teams, especially those in creative fields such as arts and entertainment, media, and advertising. Losing a great employee derails that focus and can weaken the team’s ability to achieve results. In addition, turnover can distract employees or force them to pick up the slack in areas where they lack expertise. A comprehensive Cost of Turnover Analysis captures lost peer productivity, not just the loss of productivity from the individual performer.
Hidden Factor #2: Nurturing the Competition
When a highly trained worker leaves, you become a donor to another company by giving away high-potential human capital. Training, mentoring, and all the indirect costs of taking the time to develop talent within an organization go down the drain the minute an employee hits the road. There are better ways to invest than grooming the talent of the competition. Quantify the overlooked direct and indirect costs of their manager’s training, from onboarding to professional development, to really understand how much of the company’s investments are walking out the door.
Hidden #3: Losing Credibility in the Sales Process
Start with reputational damage, and go a step deeper. For companies who prospect to institutional, multinational, or government entities, very often the sales process requires completion of a formal Request-for-Proposal (RFP) and bid. During this process, companies answer questions about the turnover rate of their staff, especially those in client-facing roles. Revealing statistics that put bidders at a disadvantage weakens the pitch and kills credibility – and their pipeline. Or new sales hires lack the experience to bring insights needed to close deals. Compare sales in high staff turnover versus low turnover areas to see the magnitude of impact.
Employee Retention Idea #46: Try It, You’ll Like It
As the world’s leading innovator of employee retention strategies, Retensa provides the tools to predict and prevent breakdowns in the Employee Life-Cycle. Our proprietary 151 variable Cost of Turnover calculation, delivered by experienced analysts, captures the costs that go undetected by the novice talent management consultant.
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