Employee Turnover Cost

A few years ago, I was participating in a small business executive coaching group where we were asked to provide financial, human resource, and general business practice information pertaining to our companies so that the facilitator could build a benchmarking database for the group. The idea was to use the information to develop best practices for the major sections of our businesses such as sales, finance, human resources, and customer service.

We had to answer several questions concerning human resources that really opened my eyes to how important hiring employees that stick matters to a successful business. The first eye opener was that we had run over 300 employees through our operation in less than ten years of being in business. At first you might say 300 does not sound that bad, but when you consider we had two employees (Lisa and I) when we started the company five years earlier and there were less than 50 people working for us at the time, the number was eye opening! The second lesson was evaluating what the true cost of turnover is with an employee. Most business owners do not fully evaluate what choosing the wrong employee costs. When you start to consider all of the factors such as advertising, recruiting, hiring, training, lost productivity and lost business the numbers can range from 130% to 250% of an employees annual compensation for any one position depending on the positions complexity. If you look at my 300 employee turnover number from above and figure that my average annual turn over of employees per year was 30 (300/10) coupled with an average salary per employee of $25,000 and a low to moderate cost factor of 150% of the salary the total cost of our turnover was 1.125 million. Show me any business owner that would not like to put that type of revenue back into the business!

With any business concept there are thousands of ways to evaluate a situation. To evaluate your turnover cost, you can use Renovo’s employee turnover cost calculator, Google “cost of turnover” and pick from the 8.5 million options or go to the U.S. Department of Labor‚Äôs employee turnover calculator. Once you do a quick estimate, you will have to agree that picking the right employees from the start is most cost effective and what is best for growing your business.

It took me a few years to years to figure it out, but when I did we put a hiring process in place, adjusted it as needed and stuck with it. Our hiring process has not completely stopped our turnover, but we have over 100 associates in the operation today and we loose very few on an annual basis. As I stated in Game Plan, develop a hiring process, have your attorney examine it thoroughly and follow it. And when you are tempted to take shortcuts in the hiring process or do a favor when hiring your buddy, remember this: Your personal success or failure my ultimately be determined by your personnel success or failure.

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