AMS Spring 2023

The True Cost of Unwanted Employee Turnover

6K SmarTech

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It’s a well-known fact that we should all be aiming for high employee retention rates and doing everything possible to avoid unwanted employee turnover. We know – high employee turnover equals bad.

Earlier this year, we shared articles on the topic of employee retention and what we felt makes great company culture in the additive manufacturing industry, which you can find here: 3 Key Indicators of Great Company Culture and Top 5 Tips for Employee Retention.

But perhaps this is too simplified. The term ‘Employee Turnover’ shouldn’t be vilified, as it loosely refers to all leavers – voluntary and involuntary. In any business, there will be some degree of employee turnover, and any HR professional will know that this can typically be categorized as follows:

  • Resignations
  • Retirements
  • Redundancies

While calculating your overall, or ‘crude,’ employee turnover is a worthwhile practice, it is also possible to calculate more specific breakdowns of data related to redundancy-specific turnover or resignation levels, with the latter particularly useful in evaluating the efficacy of your people management practices.

Calculating the Financial Impact of Voluntary Employee Turnover

Sparkbay, an employee engagement platform, has created quite a comprehensive list of some of the associated costs of voluntary employee turnover, which go beyond the obvious ‘cost of recruitment’:

With a list like this, you can start to assign solid figures to each line item. This all begins with data. Assigning tangible data to each line item will start to give context to the actions that occur following voluntary employee turnover.

For example, for an intangible item such as ‘cost of lost productivity between the employee’s departure and the employee’s replacement,’ it requires specific KPIs to be assigned to each job role, i.e., a sales executive should be linked to revenue generated, while a customer representative should be linked to customer retention figures. This will help you to understand productivity loss.

Sparkbay has also put together a useful step-by-step guide on how to break down the costs of each of the items in the list above, which should help get your HR department started.

Finding Meaning in the Madness

The takeaway from this article should be one of gaining perspective. Primarily, in understanding that the function of HR departments in an organization is just as valuable as that of a finance department, and the work that your HR personnel does is arguably just as crucial to the overall health of your business.

Secondly, we can be forgiven for assuming that the next big fallout, following voluntary employee turnover, will be the costs associated with recruiting to fill the now vacant position; but, with the above information now clear, we can see that continuously high and repeated voluntary employee turnover can have a much wider impact on the overall productivity of your teams, and therefore your finances.

When comparing potential revenue loss streams following a resignation to the cost of just simply recruiting new talent (which in most cases is the penultimate step to recovering from unexpected turnover), we can start to understand that the cost of recruitment itself is not your greatest loss stream, even if from the perspective of a pinhole it may seem that way. It is for this reason, we can start to appreciate the importance of getting recruitment right and having a clear aerial perspective of the entire employee turnover landscape.

The aim going forward is to eliminate the need to constantly recruit new talent, as the process can be costly in both time and money. The goal is to retain great talent that improves the productivity of your teams. The endgame is to expand and grow.

At Alexander Daniels Global, we like to simplify this concept into a single truism – ‘Your Business Goals Are Your Talent Goals’ – and that’s why we place particular importance on going into a recruitment project with a long-term vision in mind.

Penultimately, investing the time into calculating the costs to your business of employee turnover can help you predict and mediate potential risks and causes within your organization. And finally, if you don’t currently gather data related to employee turnover, this is your sign to begin.Afraid of the costs related to recruitment but looking to hire with a long-term vision? Why not write to us at Alexander Daniels Global – we’re ready to discuss your needs.

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