Fighting Employee Turnover Costs
Reduce Employee Turnover
Nothing can be more frustrating to a small business owner or manager than the constant aggravation of employee turnover. High or low employee turnover can be detrimental to your company. Learn what you need to know to calculate and curtail the revolving employee exit door in your business.
Employee turnover can vary as a result of the industry and location of your business. For instance, the food service industry typically experiences turnover of 100-300%. The stress of employee turnover is much greater on smaller businesses than larger corporations. Before you can take effective measures to reduce turnover, you first need to find the price your business pays in lost employees.
Calculating Employee Turnover Cost
A general approach to calculate employee turnover cost is to use 50% to 200% of an employee's annual salary.
Another more accurate method has been developed by PricewaterhouseCoopers Saratoga Institute.
This calculation uses the cost of hiring and training new staff. We will adjust some variables to match the needs of small business.
Total employee turnover cost = Costs of hiring new employees + Costs of training new employees
Costs of Hiring New Employees
The cost to your business when hiring new employees includes the following 6 factors plus 10% for incidentals such as background screening:
· Advertising
· Bonus signing
· Relocation pay
· Time for interviewing
· Travel expenses
· Pre-employee assessments
Costs of Training New Employees
· Training materials
· Technology
· Employee benefit set up
· Time for trainers
Tips for Reducing Employee Turnover
Hire the Right Demographic: Is your small business properly recruiting the right age group? Match your company profile with your target hiring group. If you can't offer career advancement to your workforce, then avoid hiring young career oriented staff. Consider hiring older employees who are less concerned with advancement.
Understand Employee Motivation: Retaining staff requires learning what's important to your employees. Look to the external motivators like recognition and rewards. Remember the internal motivators of purpose and passion.
Read Between the Lines: The real cause of employee turnover usually won't be found in your typical exit interview. Departing employees will provide the usual response of leaving for more pay or a better job. Inquire for deeper meaning. Was it a lack of support? Was the commission structure unreasonable? Take the time to get to the bottom of the turnover.
These 3 tips to reduce turnover are a good start to understanding your employee loss issue. Be critical and always look inward. You may be the source of the turnover. Make certain your management style is the way you would want to be managed. High turnover can be a signal your business is in trouble. Low turnover can also be a negative.
The Price of Low Employee Turnover
You aren't immune to the costs of employee turnover because your turn rate is low. Low turnover can be a bad sign. Over 40% of distressed businesses have very low employee turnover, according to a study by Getzler & Company, Inc.
Employee turnover costs impact your bottom line and the culture of your business. "The organizations that achieve the most dramatic reductions in turnover and maintain those lower levels are usually the ones where the top executive or owner makes it a priority" says F. Leigh Branham, author of "Keeping the People Who Keep You in Business: 24 Ways to Hang on to Your Most Valuable Talent." Addressing the issue rests on your shoulders.
Darrell Zahorsky helps companies become small business friendly. He is a small business expert and freelance business writer who creates powerful business communications for companies, agencies, organizations, and professionals who want to penetrate the SMB market. Darrell's work has been featured in numerous business publications and websites such as: Harvard Business School's Working Knowledge, CEO Clubs of America, BusinessWeek's Online Directory, Score, and many trade publications.
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