Figures varying depending on country, industry and size of the company, and the position of the employee, however it is estimated that the loss of a staff member can cost from $10 000 to upwards of millions (if a CEO were to be replaced).
The US Labor Department estimates that it costs on average, one third of a new hire’s annual salary to replace them – whereas a study by the Society for Human Resources Management (SHRM) claims that replacing someone can, on average, cost between six to nine months’ salary, and up to five times, for executive positions. Let’s dig deeper here and see why turnover costs are more than just the costs of replacing someone!
More than just replacement costs
Hiring a replacement involves costs in advertising, screening, interviewing and hiring new candidates, as well as the cost of onboarding and training.
Companies also suffer from a loss of productivity and team morale. Remaining staff are left with an increased workload and higher stress level, and a skills shortage may also be evident. High turnover can also cause staff to question why employees keep leaving, which has a bad effect on the team and can cause others to follow suit.
The newly employed need time to bring value
Normally, a new employee is a cost to a company, and over time they will become an asset. Except if you’re hiring someone who does not fit at all… (Calculate the cost of a mis-hire here!). It takes time to train an employee into bringing value, and the longer a candidate stays in a company, the more they know and more productive they become.
The impact of high turnover not only affects a company’s infrastructure and moral, but can also inflict other costs, as new employees are more likely to make mistakes. This can cause a decrease in customer satisfaction, sales and client relations and product quality.
Top 3 reasons an employee leaves
There are several reasons why employees leave the company:
- The Harvard Business Review found that 80% of employee turnover is due to bad hiring.
- In a Robert Half survey of 1400 executives, 36% stated the top reason an employee leaves is due to a poor skills match, with 30% stating unclear performance objectives.
- In the 2013 study, ‘The Cost of Millennial Retention’, the primary reason a millennial leaves is because of a better offer from another company
So, to save your company from high turnover, make sure to hire the correct person the first time round!
How could you possibly do this? Let me show you in my next article. I will give you 4 tips for hiring the most suitable candidate right from the beginning.