Employee turnover can be painful, especially in a small business. The disruption to the basic flow of operations and distraction to other employees can immobilize a business if the person who was let go or decide to leave was a key employee or well liked by their peers. Don’t get me wrong, some people just have to go and once you find out that they do, I think you should do it as fast as possible. However, there are real costs to employee turnover that should be considered when determining if someone if worth putting more time into or maybe needs a new role to fit their skills.
There are many things to add to the calculation of the cost of employee turnover and some are difficult to quantify in actual dollars or cents. Here are a few of the top ones to consider:
- Training – Consider how much you invested to train the person who is leaving as well as the amount necessary to train their replacement. That training should include not only hard costs to send them to classes, but also the opportunity costs of your internal team that will have to gt them up to speed on your policies, processes and workflows.
- Recruiting – In certain disciplines finding the right new talent is very difficult. In those cases the fees that might need to be paid to a recruiter to find the right next hire could be up to 30% of that person’s annual salary.
- Business Disruption – Assuming you don’t have people working in the organization who don’t have any real responsibilities, when someone leaves there will be disruption to the part of the business that they worked in. There will be some cost associated with this whether in delays to client delivery or additional strain on the remaining employees who have to pickup the slack.
- Client Disruption – For employees that are client facing, clients often become accustomed to “their” contact person. When that contact changes there will be some disruption to that relationship. In the most severe cases, it could cause clients to reevaluate who they want to provide your particular product or service.
- Morale of Remaining Employees – This is a tough one to measure as many times this cost happens around the water cooler instead of in an open forum. If their peers feel that the person who was let go got a raw deal, they could be concerned for themselves and spend time thinking about this, discussing it with remaining peers, or even decide that the company is not the right one for them because of it. Its best to try to have this as an open dialog with remaining employees so they can understand that they are all “safe”.
Based upon your business, there are likely other items to consider when calculating the cost of employee turnover. If you are looking at making a change in your organization, just be sure not to get caught in the trap of thinking that one salary is replaced by the next and its all the same after that.
Michael Giuffrida from Southington CT has been operating businesses since 1997. He is an experienced entrepreneur in business management, profitable growth, business valuation, mergers and acquisitions, and information technology managed services.