Every company needs to not just generate revenues, they need to inevitably make a profit.  Without profit, there isn’t the ability to reinvest in the company to ensure long-term growth.  All businesses recognize this, and when expenses are greater than revenues the natural reaction is to chop expenses.  What is often overlooked are hidden costs, one of those being turnover.

Let’s take a look at the quantifiable costs of turnover, and the hidden costs often overlooked.

Quantifiable Costs of Turnover:

1. Recruiting Costs:  An obvious one if you are using an outside firm to handle sourcing and recruiting for you.  You know the fee and the typical recruiter fees range from 20 – 30% of annual starting salary.

2. Advertising Costs: Whether you are advertising on job boards such as Indeed, ZipRecruiter, Career Builder or any others, there is a cost for advertising that can range from a few hundred dollars to several thousand.

3. Interviewing Costs: Even if you are only doing local interviews so you aren’t incurring costs of travel to bring in candidates from out of the area there is a cost.  How much time is taken by managers and others to interview prospective candidates? If you divide the salaries you pay into an hourly rate and multiply that by the number of hours spent interviewing it will likely be a big number.  Add in time spent screening resumes, handling reference checks and negotiating salaries and it becomes an even bigger number.

4. Overtime Costs: Sometimes to get the work done employees have to work overtime.  If you pay them hourly this can add up quickly.

5. Outside Consultants: It can take a while to hire someone and you may need help while the process is going on.  Maybe you bring on consultants or temporary employees to help cover the gap. Their hourly rate is typically higher than an employee.

6. Salary for New Hires: It common to have to pay more to hire someone than you were paying for the person holding the position already, especially if that person has been with you several years.  Big bumps in salary come when people make job changes rather than through salary increases at a company. Your salary to hire someone new could be 10 – 25% higher than you are currently paying.

7. Pre-employment Screening: Background tests, drug tests, assessments…anything you use as part of the hiring process.

8. Administrative Costs to Off-board and On-board: Exit interviews, handling ending payroll and benefits, Cobra paperwork, changing passwords and all the other administrative tasks that need done when someone leaves take time, and that time costs you money.  On-boarding takes someone’s time also…and that time is taken away from doing other activities for the company.

And don’t overlook that these costs don’t stop till someone is hired.  You can go through a round of interviews and find no one you like, or find candidates that don’t accept your offer and you are back to square one, incurring all the above costs again.

Hidden Costs of Turnover:

1. Training, Certification or Continuing Education Costs: Did you pay for someone to secure a specific certification or training or continuing education?  Maybe you never received the return on your investment as they left shortly after securing this. Worse yet you will likely have to spend those same dollars again, at an inflated price, for a new hire.

2. Ramp up time and Lost Productivity: Every new hire needs time to learn your systems, how you do things, what their specific role and functions are.  Statistically, you can’t expect a new hire to be at the equivalent level of productivity as the person who left for a minimum of six months, often longer depending on the complexity of the job, position level and other factors.  During the first 3 months, their productivity will likely be at about 50% of the person who previously held that position. The cost of lost productivity then is 50% of full salary during that time. And while they are learning, someone else is training them which takes away from their own productivity. Whoever is conducting the training is not doing some other piece of their job.  Then there is the time spent checking the new hire’s work, perhaps several times for correctness.

3. Morale and Productivity: There are folks spending time talking about why Suzy left and the gossip mill takes team members away from their own work, and productivity.   Don’t underestimate the cost of morale issues as a result of turnover. This can have rippling effects throughout the team or company.

4. Error Rate Likely to Increase: It should be expected that a new person would make more errors than someone who has been in the position a while.  Errors mean time to redos, frustration and morale issues that may come as a result and again someone has to spend time checking and rechecking the work.

5. Interview Time Costs: What else could they be doing that would be of greater value to the organization than interviewing.  What opportunities are lost while time is spent interviewing.

Other Costs:

1. Loss of Sales: If the person who leaves is in sales you may lose business while you have no one to cover their territory.  Or the salesperson may take customers to their new company.

2. Missed Opportunities Costs: Projects may have to be delayed, you may have to say no to a potential business opportunity because you don’t have enough resources…there are any number of opportunity costs you are likely overlooking.

Some turnover is good and should be encouraged.  Organizations become stagnant when no one leaves.  The challenge is making sure your best and brightest don’t leave.  How to retain staff isn’t the focus of this article. Helping you recognize the cost of turnover is.  Given the high cost and impact on running a business, managing your turnover by having a program designed to retain key employees is likely to pay for itself fairly quickly.