Dangers of Turnover: Battling Hidden Costs

Revenue loss shouldn’t be your only concern — understand the true costs of turnover
Kate Heinz
March 22, 2020
Updated: March 25, 2020
Kate Heinz
March 22, 2020
Updated: March 25, 2020

Employee turnover is a major business concern that starts with recruitment. The goal is to hire great employees who will perform well and stay at your company for years to come, but employers can’t neglect their role in keeping team members engaged. Failing to do so results in extremely costly turnover.

When it comes to turnover, most people are hyper-focused on the dollar signs tied to employee separations. However, it’s the consequences that fall outside of profit margins that raise the most red flags. Read on to learn the true cost of turnover.

 

Table of Contents

 

Recap: What Is Employee Turnover? 

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Your rate of turnover is the percentage of employees that leave your company over a given period of time. It’s closely related to your employee retention rate, though the two are not always the inverse of each other. While high turnover is largely indicative of deeper issues, it’s important to keep in mind that turnover is — and always will be — a part of business.

Turnover is split into two categories: voluntary and involuntary. Voluntary turnover refers to an employee’s decision to leave the organization, whereas involuntary turnover occurs when an employee is terminated by the employer. Ideally, you’re only hiring people you want to keep around so involuntary turnover is kept to a minimum. Voluntary turnover, on the other hand, is more difficult to control and has unforeseen consequences that are harmful to a  business.

Across all industries, the average annual turnover rate is 19 percent, which accounts for both voluntary and involuntary turnover. The actual rate of turnover varies greatly by industry. High-tech companies are at serious risk with an average turnover rate of 20.9 percent, the fourth highest overall behind retail, manufacturing and consumer goods.

 

The True Cost of Turnover

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The cost of turnover is extremely high; it’s estimated that losing an employee can cost 1.5-2 times the employee’s salary. Depending on the individual’s level of seniority, the financial burden fluctuates. For hourly workers, it costs an average of $1,500 per employee. For technical positions, the cost jumps to 100-150 percent of salary. At the high end, C-suite turnover can cost 213 percent of salary.

Not only are you forced to dedicate time and resources to recruiting, onboarding and training a new hire after an employee leaves, your business simultaneously takes a hit internally while the role remains unfilled. These expenses are known as the cost-per-hire and cost-of-vacancy, respectively. It’s estimated that two-thirds of all sunk costs due to turnover are intangible, including lost productivity and knowledge, which are part of the cost-of-vacancy. Only 33 percent is lost to recruitment efforts, or the cost-per-hire.

However, the most substantial impact of turnover is not a cost at all, but the damage done to your remaining employees. Your people are absolutely essential to your business’s success. Without them, you’d be forced to work more jobs than you already do (startup culture, right?) and forego all plans to scale. In short, a high turnover rate cuts much deeper than meets the eye. Take a look at some of the hidden costs associated with turnover.

 

Depleting employee morale

A beloved team member’s departure can cause a significant blow to employee morale. Losing a close friend and colleague leaves a hole in the team dynamic. On top of that, employees may begin to look for problems; if someone they trust and respect decided to leave, should they consider it, too?

 

Lost productivity 

When an employee leaves, their workload has to go somewhere. Either projects are halted altogether while the role remains vacant, or colleagues are forced to pick up the slack and spread themselves thin across multiple roles. With the latter, you risk employee burnout and driving additional employees away. Alternatively, stalled projects lead to delayed releases and lost revenue

 

Diminished employer brand

The reputation of being a revolving-door employer won’t attract job seekers. If anything, your open roles will draw in low-quality candidates — individuals who aren’t interested in a long-term position or don’t care about making a significant impact. These employees can demotivate others and drive more new hires out the door shortly after they arrive.

 

More turnover 

Turnover is cyclical. As mentioned above, an employee’s departure impacts the company culture and workload of their teammates. Overworked, unengaged employees are more susceptible to employee burnout which generally leads to additional turnover. Regardless of industry and company, some turnover will always be par for the course, but preventing subsequent employee separations is crucial.

 

Factors of High Turnover

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In order to evaluate the true cost of turnover at your company, you need to understand the aspects of your business that are likely contributing to your high rate of turnover. In extremely volatile times, the factors of turnover are exacerbated. Especially then, the following common causes of turnover cannot be overlooked.

 

Company culture

Employees can recognize a toxic company culture from a mile away, and they won’t be loyal to an employer that neglects to make improvements. In addition to role responsibilities, organizational culture is the bedrock of the employee experience. In fact, 47 percent of active job seekers cite company culture as the primary reason they left their employer.

 

Managers and leadership

Managers interact with their direct reports regularly, so it makes sense that they have a significant impact on employees’ overall engagement. In fact, 68 percent of employees who don’t feel supported by management consider leaving. In order for a business to be successful, every member of the team must have confidence in the leadership team and feel valued. Otherwise, employees will look elsewhere.

 

Lack of growth opportunities

A career plateau is a driving force of voluntary employee turnover. It’s widely understood that professional growth is not limited to upward mobility. However, if there aren’t opportunities for continual learning or employee development, you’ll quickly lose top performers who are eager to advance. Of all job candidates, 72 percent are driven by career growth and cite a lack of opportunities as the number one reason for changing jobs.  

 

One-way communication

Employees want (and deserve) to have their voices heard. Two-way communication between team members and senior leaders is vital to creating a positive work culture. Neglecting to ask employees for their ideas and opinions will drive them to look for a new company; 48 percent say that asking for and acting on employee feedback would reduce voluntary turnover.

 

Lack of employee recognition

Failing to recognize employee achievements and celebrate successes will make your people feel undervalued. If they believe that their contributions to the company aren’t appreciated, they’ll begin to disengage from their work and seek employment elsewhere. Companies among the top 20 percent in regards to employee recognition boast a 31 percent lower voluntary turnover rate.

 

How to Reduce Turnover

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If there’s one thing to keep in mind when striving to reduce employee turnover, it’s this: little things matter. Yes, instituting pay raises across the board is a huge plus, but not one that will leave a lasting impact. Implementing a work-from-home policy, offering a wellness stipend and finalizing your company mission statement are small tasks that result in a significant uptick in engagement. And as we know, engaged employees stick around. 

The good news: 75 percent of turnover cases are preventable. Use the following tips to improve retention. 

 

Recognize employees

Implementing an employee recognition program is a low-lift strategy to increase engagement and reduce turnover; 72 percent of companies report employee recognition as having the largest impact on engagement. Recognition can be seamlessly integrated into feedback sessions between managers and their direct reports. 

Still, go above and beyond by establishing a formal employee recognition program complete with employee spotlights and peer-to-peer recognition opportunities. Leverage your communication platforms to encourage employees to give shoutouts to and thank their colleagues for a job well done. Rewards are another great way to recognize employees for their accomplishments, and they don’t have to be limited solely to monetary prizes. 

Don’t limit your recognition program to internal communications. Showcase your leaders in original, thought-provoking content to stay relevant and enhance your employer brand — especially during times of erratic and unprecedented change. Engage top performers and long-term employees to promote your company across high-traffic, online platforms and in local ecosystems. Doing so is a simple yet highly effective strategy to continually build your talent pipeline.

 

Establish a feedback process

Assuming employees are engaged and happy is the first mistake most employers make. Give your people the opportunity to raise concerns and address issues before they become deal-breakers. 

Thanks to software developments, it’s never been easier to implement regular employee engagement surveys for collecting anonymous feedback. Conduct stay interviews to keep tabs on what keeps great employees around. You can further automate your feedback process by implementing one of these top employee engagement tools.

 

Promote your core values

Values are the backbone of a strong company culture. When done correctly, core values guide business decisions, give purpose to your mission statement and inform how employees interact with one another. Furthermore, having an agreed-upon, public-facing list of core values ensures you hire the right people and continue to cultivate a positive work culture as your business scales.

Take the time to carefully consider your list of core values. Engage the leadership team, members of the HR department and some of your most-tenured employees to be a part of the conversation. When possible, bring your entire team into the fold. If employees have a say in the organization’s values and mission, as well as believe in them, they're more likely to become promoters and share how great it is to work for your company. This, ultimately, leads to more employee referrals, which are the number one source for hires. Keep your list of values concise so as to be intentional and actionable. Once finalized, instruct your team in the new core values and make value training a part of your onboarding process.

 

Implement your company mission

In addition to being able to see the impact of their own work on the organization’s success, employees want to work for a company that’s making a difference. Having a professional purpose matters more to employees than compensation: 67 percent want to work for a company with a mission they believe in than for one that pays more. Finalize your company mission so every individual is working toward a common goal beyond just profit margins.

 

Enhance your benefits package

Benefits like flex scheduling and remote work opportunities matter to employees now more than ever; 37 percent of employees leave their current job for one that offers remote work opportunities. The perks you offer are an integral part of your employee value proposition (EVP) and a direct reflection of your company culture

Use information collected during exit and stay interviews to refine your employer offerings with benefits that employees want. Showing you care about your people as human beings, not just employees, will help you earn their trust and respect as an empathetic employer. This reputation will also help you attract and retain great talent; 77 percent of employees would work longer hours and 60 percent would accept less pay to have an empathetic employer.

 

Conduct exit interviews

One of the most effective yet frequently overlooked solutions to turnover is an exit interview process. Don’t squander the opportunity to learn from your mistakes as an employer by dismissing a great employee without asking them where you went wrong. When they’re headed out the door, employees are more likely to be candid about their grievances and provide honest feedback. You can then use this information to make improvements that matter.

 

Remember that while fair and adequate compensation is a top priority for your employees, it’s not the end-all-be-all. A pay raise may pacify employees for a period of time, but it won’t make up for a bad company culture. Additionally, don’t rely solely on your HR department or people team to develop solutions. Given the widespread impact of turnover, your approach will be most successful if finance, operations and executive teams are closely involved. 

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