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What is Turnover Costing You?

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Jan G. van der Hoop, President of HiringSmart™ — our go-to partner for help on how to hire more effectively, will be contributing to this blog on Fridays.  You can reach him directly at 905-338-7961 or jan@hiringsmart.com.

Employee turnover is a huge, almost incalculable, drain to the health and vitality of any business. The direct costs of attraction, selection, hiring and training are sobering enough… but when you layer on the indirect costs that include the additional strain on existing employees of running understaffed, and consider the additional strain on service delivery, the damage to relationships with customers and others… the toll mounts quickly.

Clients and prospects often ask us to build a case for the merits of HiringSmart on the basis of the impact to the P&L of reducing turnover. It’s a bit of a trap, for several reasons.

• One, turnover is often a bit of a red herring – and we often find that turnover spikes early on in our work, as people who should never have been hired in the first place decide to move on.

• Two, it’s a trailing indicator, the symptom of other problems. You can’t fix turnover by addressing ‘turnover’; you need to be willing to address the root cause.

• Three, it’s hard for us not to appear self-serving when our math turns up large, almost inconceivable numbers (and a matching ROI).

Our preferred approach has been to invite them to calculate the cost… but even then, there’s been lots of guessing and second-guessing, with little real buy-in.  We were overjoyed to find this resource on the web. It’s a compilation of other people’s research into the matter, which I’m always more comfortable reading.

The Real Cost of Turnover
(Independent Research Findings)

Source

Turnover Cost of an $8/Hr. Employee

Turnover Cost of an $80K Salaried Manager

Documentation and Supporting Material

Society for Human Resource Management $3,500 $70,000 Uncovering turnover costs can be a wake-up call, as it was for Walter Kalinowski, Director of HR for a company with 53 truck plazas. “We were hiring 200 employees per pay period. It was out of control. We had trouble finding people,” said Kalinowski. He discovered his per-employee turnover cost was $3,500.
Coca-Cola Retailing Research Council $3,637 $72,740 A major study of the employee turnover problem in the supermarket industry estimated total direct and indirect costs of replacing a supermarket cashier earning $6.50 per hour was at least $3,637.
Cornell University Hotel School $5,688 n/a Front Desk clerk, Miami hotel.
Legislative Update, Alaska State Senator Kim Elton $8,000 $100,000 Hiring and training a new employee can cost from 50% to 200% of the position’s annual salary.
Hay Group study $8,000 $120,000 The cost of replacing workers range from six months of an hourly worker’s salary to 18 months salary of a professional employee.
Workforce Magazine – Survey on Employee Turnover  $10,000 n/a 45% of responding companies indicated that turnover costs are more than $10,000 per employee.
Cornell University Hotel School Study $11,609 n/a Front desk employee, Hotel in New York City
Saratoga’s Human Resource Financial Report  $16,000 $104,000 Average turnover cost equals one year’s salary and benefits. This can vary widely, depending on industry, with costs much higher for retail.
Bliss & Associates Inc., Wayne, NJ consulting firm  $24,000 $200,000 Costs of lost productivity are as important as direct costs, such as advertising or temporary staff. Total costs easily reach 150% of the annual compensation. The cost will be significantly higher (200% to 250%) for managerial and sales positions.
Research Average – Cost of Turnover, per departing employee $9,523 $108,963  
Research Average – Percentage of annual salary 60% 136%  

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