The true cost of unplanned employee turnover

I don’t know the exact numbers for your organisation, so when I tell you that unplanned employee turnover is probably costing you between 3% and 5% of your annual revenue and up to 40% of your annual profit I’m basing that on statistics taken from averages across many industries and organisations.

Hopefully you do know your numbers.

For example, what percentage of your employees leave every year, what proportion of this is made up voluntary departures, what is the average cost of an unplanned loss, how does that affect your bottom line?

If you do know your own statistics you can plug them into the calculations at the end of this article to discover how just much unplanned employee turnover is costing you. When you do you’ll almost certainly find that those numbers are just plain frightening, assuming I’m even close to being right (and I’m pretty confident I can demonstrate that I am). Or they represent a huge opportunity, if you can do something about them

For the moment, let’s assume “regretted departures”, i.e. the loss of people you’d rather not lose, costs you 3% of your annual revenue. That’s money straight off the bottom line being poured down the drain. To put it another way, if your annual revenue is $100 million, unplanned turnover could be costing you $3 million, possibly more. If your EBITDA is 10% of revenue that’s the equivalent of $30 million in sales. (If you’re number oriented all the figures to back these assumptions are laid out for you below).

Scary isn’t it?

So, what, if anything, can you do about it?

Obviously you can’t eliminate it totally. People will always leave for their own reasons; moving away, getting married, retiring, dying, etc.

But if you could reduce it by even 1% you could make a significant contribution to your bottom line – perhaps 4% or more, equivalent to selling another $4 million for a $100 million revenue company.

And you can, for less than the cost of a cup of coffee per employee per week.

The first step is to understand the scale of the problem. If you can’t measure it you can’t fix it.

The second step is to implement a program of human capital risk management. To understand which of your employees are most at risk of leaving, the impact on the business if they do leave, their level of performance, their future potential and what plans you can put in place in case they do leave.

The third step, at least for those with a moderate to high flight risk and moderate to high business impact, is to do something about it. That doesn’t necessarily mean spend more money, it could be as simple as giving increased recognition, offering more flexible hours, providing better training, maybe just a quiet conversation. What you do in step three depends on many things. To be honest we probably can’t do much to help you there – but your own team certainly can once they know where to focus.

And that’s where Acelero can help you. By giving you the tools to measure the scale of the problem, identify which employees are at greatest risk of leaving, identify which employees have the highest impact on your business and put plans in place to minimise the risk of their leaving and what to do if they do leave.

Acelero specialises in on-line performance management and human capital risk management systems and provide the technology that makes it easy for you to recognise the problem, quantify it and take steps to fix it.

The rewards are potentially huge. Even if you only reduce unplanned turnover by 1% you’ll break even in a few weeks and your potential Return on Investment could be anything from 400% upwards. And that isn’t even counting the additional benefits from improved performance, better succession planning, more effective talent management and so on. It’s just looking at one thing, reducing unplanned employee turnover.

Now, I promised you some facts and figures so here they are, along with references to show where they came from. If you substitute my assumptions with your own figures you’ll come up with the true cost of unplanned turnover in your organisation.

Assumptions

Average cost of an employee per year                                               $82,250

(Based on ABS average salary of $62,500 plus 30% for additional costs)

Average cost of a “regretted loss”                                         $41,125

(Based on 50% of average salary. According to many estimates the cost of a “regretted loss” varies from 30% to 250% of annual salary. The Saratoga Institute – part of PWC – estimates the cost at between 25% and 150% with the % increasing as the salary and seniority increase. It costs a lot more when a highly skilled or senior person leaves.  I’ve taken a very conservative 50% as my figure. See below for how this figure is calculated).

Average turnover                                                                    15%

Average unplanned turnover                                                  10%

Number of employees                                                             1000

Revenue                                                                                  $100,000,000

Profit as % of revenue                                                                        10%

Profit                                                                                        $10,000,000

Calculations

Unplanned losses @ 10%                                                        100 employees

Cost of unplanned turnover 100 employees @ $41,125         $4,112,500

Cost of unplanned turnover as % of profit                             41%

Amount of sales needed to generate $4,112,500 @ 10%      $41,125,000

Potential savings - reduce unplanned turnover by 1%

Unplanned losses @ 9%                                                          90 employees

Saving in retained employees                                                 10 employees

Saving @ $41,125 per employee                                             $411,250

Saving as % of profit                                                               4.1%

Equivalent in additional sales                                                   $4,112,500

Steve Hall is Principal of Acenet and has 30 years of senior management experience in professional services, sales, marketing and global account management and has worked with customers ranging from small private companies, through ASX 100 organisations and government departments to multi-billion dollar multinationals.