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The Truth About
Turnover
We
developed the Turnover Cost Calculator because we've learned
that management doesn't always "get it" when the H.R. staff
laments the cost of turnover but they tend to respond enthusiastically
when they're faced with a dollar amount. And, to be honest,
H. R. pros should be counted on to back up their arguments
with facts and figures.
Lest you think we inflated the true cost of employee turnover,
our calculator reports costs averaged from several sources.
The cost of turnover should include both direct and indirect
costs, experts agree, and that's sometimes hard to track.
Recruiting, advertising, interviewing and new-hire processing
and orientation are often accounted for but there are others,
such as pre-turnover (costs connected with a departing employee's
slower work pace and absenteeism), severance pay, unemployment
costs or litigation fees.
Take a look at these figures we
collected
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William M. Mercer's 1998 FAX Facts Survey on Employee Turnover
shows that 55 percent of companies surveyed estimated the
cost of turnover at $10,000 per person or less, but 10 percent
calculated it at more than $40,000 per person.
-
Manchester
Consulting 1998 retention study indicates that for any number
of factors, including company revenue and number of employees,
turnover costs are most likely to fall within the range
of $1,000 to $10,000 per employee (65%). 10% of companies
reported a cost in excess of $20,000.
-
American
Hotel and Motel Association's 1997 U.S. Full-Service Deluxe
& Luxury Hotel Benchmarking Study used well-known industry
figures of $2,500 for direct and $1,600 indirect turnover
costs per departing employee to calculate the average turnover
cost of a hotel at $631,400.
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The
Saratoga Institute believes that an average turnover figure
for companies is one times the cost of the employee's salary
and benefits, varying widely depending on the industry.
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A
recent survey pegged the cost per new hire (acquisition
cost only) using job fairs, print advertisement and other
traditional methods at $3,295.
Client
Example:
In a conversation with a new client trying to file
a sales position for his construction company, the owner related
his experience with a recent sales person and what it cost
him. He said he hired this person because he thought he could
sell (gut feeling). He employed him for six months ($20,000
salary). He was in charge of the sale of a large project.
But because he didn't do a good job of selling the project,
do good cost estimates and making promises he couldn't keep,
the project lost $35,000 instead of making a profit. That
is a $55,000 turnover cost not even considering lost opportunities
for other sales and other poorly planned projects. That why
the owner is now using our Sales Indicator and Profile Assessment
to take his gut feeling out of the equation.
Client Example:
National-wide law firm did a 9-year lookback at turnover cost
of attorneys. Over that 9-year period, they lost 368 attorneys.
Some of these were associates and some were partners. First,
they discovered that only 4 out of 25 law school graduates
made partner. Many left after three years. Second, using American
Bar Association's estimate that an attorney's average turnover
cost is $100,000, they estimated they lost about $37 million
in attorney turnover cost! They was their net profit for the
previous year! Needless to say, they have looked hard at their
recruiting process and the culture that they have created
at their firm.
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