What does staff turnover really cost you?
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If you run a business of any significant size then you will almost certainly have faced the task of replacing an employee who has left. If you’ve been in business for a while, then you’ve probably ridden in that rodeo quite a few times.
When I talk to business leaders about staff turnover the message that keeps coming back is how time consuming and inconvenient the whole process is. What is rarely mentioned is the cost of replacing behind a departing staff member.
When you consider how much attention most business leaders and managers give to their costs, I find this extraordinary – especially when you consider that the cost involved in replacing someone earning £25,000 or more is surprisingly high.
In fact, current estimates put that cost at around the equivalent of a deposit for a house - £30,500, give or take a few quid.
When I tell people this figure two things tend to happen. First of all, they genuinely don’t believe it and insist that I must be exaggerating (I’m not) or joking (again, no).
The second thing that happens is you see the cogs starting to spin in their heads as they begin to work out what that means in revenue leaking out of their organisation.
So, to help you to assess the potential cost liability of failing to get a grip on your staff turnover, try this:
The lowest employee turnover rate in the UK in 2021 by sector was in insurance, at 8.8%. On average, it’s 15% across all UK business.
What that means is that if you employ 50 people, and you experience 8% staff turnover, you’ll be spending up to £120,000 to recruit their replacements.
Here’s how that £30,500 breaks down:
Hiring
This is going to cost you somewhere in the region of £5,500 when you take into account the cost of advertising the vacancy. You can reduce that by limiting the places in which you place your advert, but that risks it not being seen by the kind of candidates you really want to hire.
Using a recruitment agency is expensive, costing anywhere between 10% and 20% of the post’s annual salary if they provide you with the successful candidate
And interviewing the shortlisted candidates will cost you £1,000 for every employee you have to replace.
If you’re like most of the people I talk to, the chances are the inconvenience and time spent on recruitment suddenly seem quite trivial, and your thoughts have begun to turn to what your organisation is doing to hang on to the people it’s got.
And that should be the priority for all businesses.
Onboarding and training
When you find the successful candidate, you’ll chew up man hours preparing an offer letter, negotiating terms, drawing up a contract, creating a welcome pack and/or an employee handbook. Those costs escalate the more often you have to do it.
Inducting a new employee requires an investment of time from everyone who forms part of the new hire’s induction process. That may seem incidental, but if your highest achieving sales rep is giving up an hour of their time to help welcome a new colleague, that’s an hour when they’re not selling your product or service.
You’ll also need to train the new joiner – and the cost of this will vary depending on the specific needs of the individual and the business.
Playing catch up
Your new employee is highly unlikely to be as productive as the one they’ve replaced, so you’ll lose some level of productivity while they get up to speed. On average – according to Oxford Economics and and Unum, that takes around six months and costs £25,000 in reduced revenue.
How can you bring down the cost of staff turnover?
If you’re like most of the people I speak to about this issue then inconvenience and time wasted on recruitment have probably suddenly become far less interesting than trying to cut the cost of recruitment to your business.
The first thing many business leaders do is see if there’s a way to reduce the actual costs of recruitment. But this is always a false economy, because the most effective saving you can make is by ensuring your long-serving employees don’t leave.
Everybody wants something different from their job. For some, it’s remuneration. For others it’s flexible working. Then there are those who want meaningful benefits. Or a generous pension contribution.
The smartest way to get to grips with employee turnover is to ask your people what their working life – and then design policies, processes and reward schemes that reflect that need.
If you’d like to find out how Constantia Consulting can help you to design a business that people want to stay with, get in touch for a confidential, informal chat. We’d love to hear from you.
