The Turnover Burn. What does employee turnover actually cost?

Updated: Aug 26, 2018

Job ads. Recruitment. Onboarding. Training. After all that, your new employee is finally off and running on their own, albeit in a highly inefficient way until they get some experience. In the services and retail sector, companies often report a minimum of 2 months before their employee is productive past the break-even point. According to gov’t statistics, the employee turnover rate in those industries is anywhere from 40 to 70%, which indicates that many employees are gone before they even eke out the slightest bit of return on investment. Do you really want to know how much that is costing your business? You should.

Everything turn, turn, turn.

Let’s work through an example. One retail chain in Australia has about 20,000 employees with a turnover rate of 47% per year. They are also measuring their early attrition rate at 25%, measured as turnover within the probation period. Like many of their peers, they advertise on the popular job boards to a whopping annual total cost of $2.6M. But wait, there’s more! Sources show that the actual cost of turnover includes many other, often untracked and difficult to quantify components such as:

· Ads, interviews, background checks, onboarding, training, and manager’s time.

· Time to productivity, often up to 2 months.

· Negative engagement of workforce in high turnover industries.

· Exit administration and exit interviews.

· Lost/poor sales due to negative engagement.

· Poor customer service, brand damage, and bad internal culture.

The cost stackup of turnover isn't obvious at all, and is often mostly untracked.

Sources such as this study by CAP estimate the cost of turnover in lower-wage jobs to be about 16% of the annual wages. Back to our example, let’s do the math:

20,000 employees x 47% turnover x 16% cost x $45,000 avg wages = $67.7M per year.

And early attrition is a double whammy because the employee has hardly become productive.

$67.7M x 25% = $17M. So the total turnover cost is $67.7 + $17 = $84.7M per year.

Close your eyes, open them again, breathe deep, and re-read that figure. This company is spending $84.7M per year on turnover and in all likelihood, they are not doing a whole heck of a lot to improve that. What else could they be doing with that money? And what can they do to recover some of it?

Stay tuned for our next blog in this series that will detail how to get serious about reducing turnover. Now that you know the true costs, hopefully you agree that it is worth the time to get serious about it. Fortunately, there are simple steps to get going in the right direction and we will look at the pros and cons, including how workforce geo-optimisation fits in.

Until next time!