Your organization’s turnover rate is one of the most spotlighted HR metrics. But, just having the number doesn’t give much of an impact. To get a full picture, determine the true cost of turnover.
Turnover rate is the percentage of people that leave the organization over a given period of time. We all know that high turnover rates are bad. Especially if those are numbers are higher than your competitors or industry standards. But do you know how much that turnover is costing your organization?
The cost of turnover can be broken down into two buckets, tangible and intangible costs.
The Tangible Costs of Turnover
The tangible costs are the direct costs that can have actual dollar amounts attributed to it. To replace the person leaving, funds are needed to source and recruit potential candidates. You can use the HR metric, Cost-Per-Hire, to get a good idea of what your recruitment team is spending.
These costs include recruiter salaries, job board fees, applicant tracking software fees, and career fair costs. Not to mention the possibility of signing/referral bonuses, search firm fees, or relocation fees for specialty roles. Also, with today’s labor shortage, you may have to offer higher salaries than the previous person who was in the role, which may or may not be in the budget.
Costs aren’t only just from the recruitment or talent acquisition side. The business has to continue, which means teams may need to work overtime to cover those responsibilities. An alternative option would be to bring on temp staff, which could be costly as well.
Even once a qualified person is identified, resources are spent in onboarding and training the new employee. It takes time for the new hire to get up to speed and meet expected levels of productivity. It’ll be anywhere from six months to two years for someone to meet high performing standards.
The Intangible Costs of Turnover
Intangible costs are a bit trickier to calculate. Those are the costs that may not have an exact dollar amount but can still indirectly cost the company money. But, this doesn’t minimize their importance.
For instance, unfortunately, temp labor or overtime expenses may not be an option. So an exempt level manager may have to pick up the duties. The manager becomes overworked and their productivity goes down. If the role is open for an extended period of time, the overall quality of work can decrease. This could lead to lost customers or clients.
Lastly, high turnover rates impact employee morale overall. Especially in higher levels of leadership. When there’s a mass exodus within the organization, people feel uneasy about the stability of the company. They may feel the need to jump ship with others. Additionally, high turnover means low engagement, which will only perpetuate the cycle.
How It Adds Up
Adding up those costs can go into the thousands. Turnover can cost anywhere from $15,000 per person to 1.5 times that persons salary. The cost of turnover exponentially grows the more senior the role.
Calculating the cost of turnover is tricky, but important for understanding how it impacts your business. It will also help create a stronger business case for implementing solutions to mitigate the high turnover.
Calculating the cost of turnover can be time-consuming, but managing and tracking your HR metrics don’t have to be. An HR dashboard provides a one-stop place for all your metrics. It will automatically create visualizations by pulling in your workforce data from your various HR systems.