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In an otherwise smoothly running company, the turnover of the employee base is a key measure of
success. The simple fraction of employees leaving the company divided by total employees can be a revealing
indicator of systemic problems within the company.
What is the cost of employee turnover? Many managers believe that the cost of employee churn is
near zero, especially at the lower skill level or lower compensation jobs. Frequently, managers think that turnover
of commission-only sales people has zero cost. But this attitude ignores the real costs of employee churn - even
at the commission only level. Two categories of costs are associated with churn:
Direct Costs
Hiring costs: What does it cost your organization to hire an employee? Consider advertising costs, salaries
associated with interviewing time, commissions or headhunting fees paid, etc.
Training costs: What is the cost of training an employee? Take into account the actual costs of a training
class, classroom rental, materials, time, etc., but also the out-of-classroom training time in which paid staff
participate.
Support costs: What is the cost of supporting an employee generally? Car and phone allowances, office space,
desks, chairs, etc. all factor into this number. Excuses like "We would have to have those resources anyway" are
superficially correct, but ignore the lost productivity of employee churn.
Indirect Costs
Lost Production: How much production was lost while no one occupied the job in question? Take an average
measure of expected production for the period.
Lost Productivity: Learning curves for new employees are real. How long does it take someone to become fully
productive in a new job? Normally that period is three to six months and perhaps longer for some jobs. Sales people
take at least three months to reach full productivity in the bankcard business. In addition, a new employee has to
learn the new organization, the people, establish relationships and other time consuming tasks that, while necessary,
cost the company money in reduced productivity.
Administrative Drag: Employee churn generates a high degree of administrative cost - reporting requirements,
W2's, EEOC issues, government unemployment costs, etc. These costs are almost never passed through to the manager
making the hiring and firing decisions, yet they are real costs to the company. What else could your staff be doing
while they are tracking all the employees who quit in the last year and are no longer productive for your company?
A dollar spent this way is wasted.
The Bottom Line: Employee churn costs more than you think and it hits you everywhere. Successful companies know
that keeping experienced people productive, focused and motivated is a lot more efficient and profitable than
employee churn.
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