What's Your Cost of Turnover?

I was having coffee with a colleague today talking about the cost of employee turnover. Most managers simply do not understand the actual total costs of employees leaving your organization so I thought I'd do a super quick primer so you can calculate the costs yourself.

Most human capital specialists, like Dr. John Boudreau from USC's Center For Effective Organizations, believe the range is between .75x and 1.5x the base salary of the replacement hire. So if you employed replaced a worker with someone paid $100,000, your soft and hard costs would be roughly $75,000 to $150,000.

The reason is that you need to factor in both the hard costs (recruiter fees, relocation, sign-on bonuses, advertisements, etc) with the soft costs. The soft costs can manifest themselves in all sorts of ways:

• Poor sales performance against quota
• Missed deadlines
• Quality slippage (overwhelmed or new employees get no relief from workload but execution falters)
  
• Poor customer experiences which drives away repeat business and damages your brand (their employees are clueless...I had to show him how to do his job)
  
• Damage to your employer brand (don't work there...people leave all the time...)
• Key knowledge is lost
• Past investments in training get applied to your competitors
• Additional stress on remaining employees that could cause further employee turnover

I am seeing many organizations simply "lock up" their investments in their organizations which is really sad, because now is the optimal time to tune up your organization. I realize people are freaked out about spending, and the VCs have put the fear of god into CEOs regarding capital preservation but people are forgetting that they're already spending A LOT of money on employees and initiatives already. The key question is whether that's money well spent.

The best way to win in a recession and the upcoming boom is to work with your employees to reduce bureaucracy, deliver an amazing customer product or experience that is difficult to replicate, invest in your culture and employees, and build deep, authentic relationships with the best talent now (even if you're not hiring).

These investments may take time to bear fruit, but you need to invest. The boom will happen and in the words of Mister T, I pity the fool who isn't be strategic about talent!

When you start quoting Mister T it's time to sign off. Let me know if I can help you calculate your true cost of employee turnover and help create a talent strategy that works fantastic in a recession and a boom.

Thanks,
Brad (www.herberthrc.com)