The High Cost of Turnover

Happy March!  I have written before about how much luck goes into play when running and owning a business.  ProRecruiters is now 7 years old and I find myself still wondering how much luck as opposed to hard work has played into our success.  However, I feel more strongly now than ever that hard work, solid processes, and a solid team have played a much greater role in growing and sustaining our business.  That brings me to my topic for this month – how many members of your team do you think you found, hired, and have retained from “luck” or was it by actually working hard, following a particular process, and continuing to manage effectively?  If you think a lot of it is luck I would urge you to create some stronger hiring processes because the cost of turnover can be devastating for any business - large or small!

Over the course of the last 6 months we were exploring some ideas for expanding our services and subsequently engaged in partnerships to explore additional offerings.  Throughout these partnerships there were some hires that were made - and I hate to admit this – that were not good.  The reason was simply because we did not follow our own recruiting practices and went ahead and made a quick hire. I am sure I am the only one who has given advice yet not taken it!   No surprise to us, not one of the 3 worked out.  It was an excellent, but costly, reminder to us internally to adhere to our hiring practices and take time to make sure we found the right fits and partnerships.  Sometimes you have to make mistakes to make gains.  We started over at the beginning of this year and committed to our hiring process. In the end we came up with two exceptional professionals and it was difficult to make a decision!  Upon reflection of this process I wanted to know the cost of our bad hires. 

While the cost varies by industry and role at the company, there are estimates based on a Center for American Progress study you can use to estimate your costs:

• Less than $30,000/year: 16% of annual salary
• $30,000 - $75,000/year: 20% of annual salary
• $75,000+/year: Up to 213% of annual salary (highest for hard-to-replace, high earning CEOs)

Here is an example:

Company 10 employees	Position 1 $15/hour Admin	Position 2 Mid-level manager $40,000	Position 3 100K Management
# of terminated EE's by role	1	1	1
Cost per employee	$4992 (16% of salary)	$8,000 (20% of salary)	$213,000
Cost of Turnover by role	$          4,992.00	$         8,000.00	$  213,000.00
Total cost during time period	$     225,992.00

Now that you can see how much turnover is really costing you, it’s important to understand where a lot of that cost is actually coming from - the soft costs. Everything costs money. Although it may seem that hiring a new employee, or letting one go, isn't costing you anything, here are a few things to consider that are factored into the total turnover cost:

• Productivity: You need to remember that when you’re short-handed, your current employees are putting in overtime. You may end up needing to hire a temp or contractor as well. None of these options are a permanent fix and will eventually have to be replaced by a full-time worker.

• Recruitment: This is one that can really cost a lot depending on how you handle it. You can count the time it takes to advertise, review resumes, interview, conduct background checks, administer drug tests, etc. all as costs. Your time is money and if it is being spent on constantly looking for new employees, chances are that it isn't being spent on other valuable components of the business.

• Onboarding: Even if you are able to hire someone quickly and have significantly cut down the recruitment time, don’t forget that training your new hire isn't an overnight task. You’ll spend at least a week training them on how things are done at your company. Also included are the prices for training material, potential mistakes made, and bringing in an employee to shadow them.

If you can learn to embrace tracking turnover for your business, you have an opportunity to put the time and money that would have been spent on it into the heart of your business.  And if you are like me you will not rely on luck to build a great team but rather on hard work, solid processes and superior management to retain the talent you have.  If you need our assistance building your team we are here to help!  We maintain a 98% hire rate on our temp-hire and a 100% success rate on direct placements.  It’s not luck, it’s our process and it works! Here is to a “lucky” March!