Is Turnover Killing Your Bottom Line?

 What does employee turnover cost?

  • Corporate Research Council – Direct expenses can vary from 46% of annual pay for frontline employees, to 137% for a bank teller, to 176% for IT professionals and 241% for middle managers.
  • American Hotel and Motels Association calculated the cost of turnover for an $8 per hour employee to be $4,100.
  • Cornell University Hotel School says that the cost of turnover for a front desk employee in a hotel is $5,688.
  • American Organization of Nurse Executives  – says shows the cost of turnover for a Medical/Surgical Nurse to be $42K, and $64K for a Specialty Nurse.
  • PriceWaterhouse Coopers  – Turnover cost for the average hospital is $300K for every 1% increase in annual turnover.

These estimates vary widely because the researchers utilize slightly different methodologies in their calculations.  But regardless of how you cut it, the numbers are staggering.  While we would all agree that some turnover may be good, especially when it includes low performers moving on, we would also generally agree that much of the turnover we experience is not preferred.

At a mid-sized company I worked with that employed relatively high income employees in the technology and software industry we calculated the cost of turnover using Corporate Research Council numbers for IT professionals.  With a 17% turnover rate, the impact was costing them over $7M annually.  When we looked only at the voluntary turnover, which was about 80% of that number, the cost was still above the $5M mark.

Many business operators hear these numbers and either consider them to be unbelievable or insurmountable, so they often ignore them and go on doing business the way they have always done it.  If they do chose to pay attention to them at all they may be satisfied with simply keeping their turnover rates within one or two percentage points of the norms for their industry.

This company took a different approach.  They valued their employees and wanted them to succeed.  They agonized every time they lost an employee to a competitor.  They were frustrated with the reasons employees gave for their departures (a topic for another post).  We joined forces and took action.  We launched a concerted effort to develop a culture of engagement.  We listened to employees by means of employee surveys and managers responded to their concerns and questions.  We revamped the performance management and rewards systems and equipped every manager with the skills and resources necessary to develop and reward their people.  The leadership operated on a philosophy of openness and transparency and share the results of employee efforts on regular interval, so they could see the difference they were making.  Their efforts resulted in a turnover rate dropping from 17% to 8% during a period when turnover averaged 19% for comparable companies in their industry.  That savings went directly to the bottom line, and the change was evident in the overall performance of the organization.

These kinds of results can only happen when leaders are committed to Getting the Right People, developing processes, systems and a culture to Keep them, and Grow them to be the best they possibly can be.

This is also why I love what I do with Resources for Leading.  I have the opportunity everyday to help companies achieve these kinds of significant results.

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