Are you budgeting $20M for employee turnover this year?
Yes, you read that correctly.
Josh Bersin of Deloitte released a Cost of Churn Model in 2017 that proved among many other alarming statistics, that the real cost of employee attrition for medium to large businesses is $20 Million.
What’s more is that this was based on a conservative estimate of $50,000 of cost per regrettable leaver, whereas estimates have since grown even higher to $64,000.
Now, before you jump to the conclusion that your business isn’t struggling with this, ask yourself
Do you know exactly what employee turnover is really costing you?
The reality is this is most businesses don’t and you’d be surprised to learn just how many quickly realise that their figures are similar to or completely eclipse the $20 million number.
The reason that employee attrition can cost medium to large-sized businesses such enormous amounts of money, often without being noticed, is that most of the costs Bersin refers to are hidden. After all, employee turnover is not a line you’ll ever find on your business’ P&L statement.
So, with the End Of Financial Year (EOFY) fast approaching and your focus well and truly on your business’ financials…
Here’s everything you need to know about identifying and resolving the cost of churn in your medium to large business.
Discovering the hidden cost of employee turnover.
The reason that the average business’ employee turnover costs are so high (often upwards of $20 million) and yet so hidden, is that this number is comprised of several smaller costs that are scattered across different areas of your business.
Employee turnover costs are so incredibly high but they’re often hidden as they’re scattered across so many parts of an organisation.
When HR managers or employers are looking at each of these costs individually, it can be easy to reason that they are “just another cost of doing business”, but when looked at as a whole, it turns out the turnover is a large and unnecessary cost that must be dealt with immediately, or else it could risk the financial stability and future of your organisation.
To get clear on the problem, here are some common areas where churn costs can arise
The most common employee churn costs
As you read through them, be sure to ask yourself whether your current budget is accounting for these costs and keep in mind that in each instance, the higher your rate of attrition, the higher your expenses are likely to b
- Recruitment expenses: These are the costs associated with advertising job openings, conducting interviews, and hiring external recruitment agencies in response to a resignation.
How much does your organisation spend on recruitment?
- Onboarding costs: These are expenses related to training new employees, including orientation, job-specific training, and mentoring. Often these expenses will grow alongside your business growth, which may look like an investment, that is, until you realise that if the people you are training are leaving, there is little return on investment.
How much does your organisation spend on onboarding and induction?
- Loss of productivity: If your business is in a constant state of churn, when employees leave, there's a period of decreased productivity as remaining staff adjust, and new hires get up to speed with the systems and processes of your business.
How much is the reduction in productivity potentially costing you?
- Severance pay: This includes all payments made to departing employees as part of their termination package, including severance pay, accrued leave, and other benefits which are all expenses that add little value to your business.
What are the costs being sustained when someone leaves?
- Loss of institutional knowledge: Experienced employees possess valuable knowledge about company processes, systems, and relationships. When they leave, this knowledge is lost, resulting in decreased efficiency, productivity and the increased occurrence of system errors.
What is the business value of the IP walking out the door?
- Impact on morale: It’s difficult to build company culture when your business is a revolving door of employees. High turnover can lower morale among remaining employees, leading to decreased engagement, increased absenteeism, and reduced overall productivity.
How much productivity loss is occurring when staff are feeling uncertain?
- Customer dissatisfaction: Frequent employee turnover can also disrupt the most important feature of your business; client relationships. If your clients are constantly having to adapt to new points of contact, this can lead to dissatisfaction, loss of business, and damage to the company's reputation.
What are lost sales costing your organisation?
- Vacant positions: When roles are vacant for an extended period this can lead to increased workloads for existing employees, increase the potential for burnout, and decrease the quality of their work all of which is a direct cost to your business.
While less headcount may seem like a cost reduction, what is it really costing?
- Legal fees: There is also the potential for extensive legal costs when resolving disputes with departing or disgruntled employees, such as litigation over wrongful termination or breaches of contract.
How much are you spending on HR legal fees?
We could continue, but you get the idea – these costs add up and they all are “hidden” amongst everything.
It’s time to audit your (real) turnover costs.
Now that we’ve scared you…(sorry), you must take the time to conduct a thorough audit of your business to ascertain just how much employee turnover is costing you.
Don’t worry, with so many moving parts to consider, you don’t need to land on an exact number. We promise that once you begin to notice the number climb closer and closer to the $20 million mark, you’ll realise the need for change.
We suggest you start by asking some basic questions:
- How much are you spending on recruitment?
- How much are you spending on training new staff?
- How much are you spending on severance pay?
Soon enough, you’ll fall subject to the “Red Car Theory” in psychology.
This theory states that once you buy a red car, you’ll be triggered to notice red cars everywhere due to the focus and meaning you’ve attached to that attribute.
The same will occur when auditing your turnover costs; the more you enquire about the cost of turnover, the more you will begin to notice areas that are costing your organisation.
Having conducted an audit and recognising the need for change, the last question you need to ask is a simple one:
Are we able to cut 20% or more of these extra expenses?
The answer is just as simple:
Yes, you can! All you need is a culture of Internal Mobility.
How to minimise employee turnover costs with an Internal Talent Marketplace.
The root of all evil when it comes to these expenses is employee turnover, otherwise referred to as churn or attrition.
Turnover is generally the result of your employees feeling trapped or thinking that their opportunities for career growth and expansion are better served elsewhere.
With GoFIGR, this is an easy problem to overcome.
Here’s how it works.
An Internal Talent Marketplace platform, GoFIGR is a Software as a Service (SaaS) designed to collect and intuitively analyse employee skills data so you can supercharge your Internal Mobility and truly embrace a streamlined model of internal career progression.
With valuable insights collected from your team, GoFIGR allows you to:
- identify your employees’ current skills
- align them with your business needs
- realise your team’s full potential
- reduce the cost of recruitment by upskilling from within
This way, you can open your employee’s eyes to potential career progressions and FIGR (Find, Inspire, Grow and Retain) talent with data-driven strategies.
Stop spending millions of dollars dealing with employee turnover. Instead, cultivate from within.
You’re future team is already working for you.
Don’t let that talent go to waste – allow them to grow their career AND drive your business into its tomorrow in ways you never thought possible.
It’s the ultimate way to build internal mobility and foster a progressive workplace culture to minimise your reliance on the hiring cycle.
It’s a great way to save crucial hours in your day as well.
Contact GoFIGR today to discover how we can help you foster a future-focused workforce using our Internal Talent Marketplace platform.
[Book a GoFIGR demo]
Helena Turpin spent 20 years in talent and HR innovation where she solved people-related problems using data and technology. She left corporate life to create GoFIGR where she helps mid-sized organizations to develop and retain their people by connecting employee skills and aspirations to internal opportunities like projects, mentorship and learning.
