Employee Turnover – How Much is It Costing You?

We all subscribe to the adage that it is cheaper to keep a current customer than to acquire a new one. The same premise applies to employees.

Recruiting new staff is a time consuming and expensive exercise that directly affects your bottom line. Many organizations are unaware of the actual costs of employee turnover or why good employees leave.

Studies have shown that it can cost up to 18 months’ salary to lose and replace a manager or professional and up to six months’ salary to lose and replace an hourly worker. If you think these numbers sound high, consider all the different costs that are involved:

  • Administrative expenses related to the exit of an employee and entry of a new hire
  • Advertising expense
  • Management time involved in reviewing applications, interviewing candidates and conducting reference checks
  • Potential overtime costs for other staff while the position is vacant
  • Time and resources spent for orientation and training of the new employee
  • Supervisory disruption in orienting and training the new employee
  • Loss of productivity while the employee is on the learning curve
  • Errors that occur while the employee is learning

With the highest turnover rates in Canada in retail trade, hotels, restaurants and leisure, reducing turnover is a particularly relevant topic. Given the expense, it makes sense to understand why good employees are leaving and what can be done to keep them.

While pay and working hours are certainly important factors, studies in the hospitality industry also point to several other key reasons for leaving. These include:

  • Lack of recognition for good work from management/supervisors
  • Lack of opportunities for advancement
  • Lack of opportunities for training and to learn new skills
  • Inability to use skills and abilities

Employees of Canadian small businesses have reported that the following changes in management and supervisory behavior would influence their decision to stay or leave a job:

  • Give more recognition for a job well done
  • Give employees more constructive feedback
  • Share information with employees
  • Clearly communicate the work to be done
  • Give feedback on a regular basis
  • Make sure employees have the training they need to do their work
  • Plan work effectively
  • Ask employees for input before making decisions that affect their work

It’s interesting to note that most of these changes cost nothing to implement and the impact can be significant. For example, a large hotel chain calculated that a 10% decrease in annual employee turnover led to a 1-3% decrease in lost customers. That translated to a $50-$100 million increase in annual revenues.

The numbers in your business may not be of that magnitude but the concept is the same—employee turnover costs—and some of the solutions don’t require cash outlays.