The Hidden Costs of Employee Turnover

Do you have enquiries that fail to convert to engagements, loyal customers unhappy with something or someone? Did you know for each dissatisfied customer there are 26 other unhappy customers who have remained silent – Lee Resources. 

Dissatisfied customers are just one hidden cost of employee turnover.  Employee retention is essential to a business’s bottom line and the cost of poor retention rates is typically grossly underestimated.  Often a business considers its payroll-to-revenue percentage to be the cost of staffing their business, but here are some of the ‘actual’ costs. 

Payroll-to-revenue typically sits around 15 - 20% but can be as high as 50% of a business’s gross revenue, however, the real cost of employee placement and replacement is 100 – 200% of the employee’s gross annual remuneration.  

A new client was replacing an administrator earning $45k pa every 18 months = an employee replacement cost upwards of $139,000 every 18 months which is enough to make any SME business leader’s eyes water. 

Let’s look at the costs associated with replacing an employee. 

1. Employee remuneration hikes
2. Writing and publishing vacancy advertisements
3. Reviewing applicants
4. Managing candidate short and long lists
5. Screening candidates (provided you have some uncovered some to screen)
6. The Interviewers’ time away from their core function
7. Referee checking
8. Training and other onboarding costs including the trainer’(s) time away from their core functions
9. Reduced staff morale
10. Reduced customer satisfaction and lost opportunities
11. Hard costs of new-employee errors e.g., charging the incorrect rate, supplying the wrong product
12. Serial resignations especially if the lost employee was highly influential or well-liked in the business
13. In some instances, significant Personal Grievance costs
14. Costs of Exit Strategies if you have made a poor hiring decision which is extremely common especially when the screening interviewing and screening is done in-house
15. Co-worker resentment at picking-up-the-load of a bad hire
16. Fractured teams
17. Lost customers
18. Lost ‘talent’. The value of your talent compounds every year because they have established relationships and gained intellectual knowledge particular to your business.

Whilst I have identified 18 cost factors in poor employee retention rates there are more, and I am sure you will agree the cumulative impact of these is significant, so I encourage you to do all you can to retain good talent and certainly do everything in your power to avoid bad hires. 

The RIPPLE team are here to help if one or some of these areas may need attention in your business so don’t hesitate to reach out to us team@ripple.net.nz.