Some companies believe that high turnover is simply part of their business model. This is especially true of startups, which run on lean teams and a demanding culture that often forsakes work-life balance in favor of success. But regardless of a company’s maturity or circumstances, it’s a mistake to treat employee turnover as a foregone conclusion. High turnover is devastating to a company’s reputation, talent pool, morale and most of all, productivity.
The proportion of employees leaving their jobs voluntarily is at a 17-year high. More than 50 percent of all organizations globally are having trouble retaining their most valued employees. This means that if you’re not keeping your employees’ interests top of mind and investing in their happiness, they’ll attempt to find someone else that will. And whether you’re a Fortune 500 company or a struggling startup, turnover is not what you want.
While some churn can be healthy, anything higher than 20 percent per year is extremely disruptive for an organization. Meanwhile, in several industries, among them retail, customer service and hospitality, 30-40 percent turnover rates are common. Now more than ever before, employees are companies’ most critical assets. This is true for low-skilled jobs, management positions, and everything in between.
Spending time posting jobs, interviewing candidates and training new hires takes time away from other valuable tasks. While positions are vacant or filled by new hires just learning the ropes, vital work either isn’t getting done, or is moving along at a slower pace. After all, it can take new hires 1-2 years to reach the productivity levels of an existing employee. Plus, over 2-3 years, employers generally invest 10-20 percent of an employee’s salary in training that person, an investment that disappears with each resignation.
Scores of studies have quantified the financial ramifications of turnover. Most studies estimate that the cost of losing an employee ranges from tens of thousands of dollars for lower-skilled workers to 1.5-2 times the employee’s annual salary for highly skilled roles. To put this in perspective, Deloitte recently estimated that for highly-skilled workers, the hiring costs and lost productivity resulting from turnover add up to approximately $121,000 per departing employee. Meanwhile, a paper from the Center for American Progress determined that the average cost to a company of turning over a highly skilled job is 213 percent of the cost of one year’s compensation for that role. This is a staggering price for any company to pay, and the effects are becoming even more devastating given the current global talent shortage, which is at its highest in over 10 years.
Most of these studies look exclusively at hard costs, such as the expense of hiring, onboarding, training, development, and the amount of time the role is unfilled. But the considerations go beyond these factors. Another case study recently argued that retaining a salesperson for three years versus only two, along with better onboarding and management practices, yields a difference of $1.3 million in net value to a company over a three year period. This is because tenured employees drive far greater value for an organization than those that stay with a firm short-term. Employees are appreciating assets that produce more value over time. This makes sense considering that the longer we’re with a firm, the more productive we become. We get to know and anticipate the needs of customers and employees, and become more familiar with systems, products, and the expectations of our coworkers.
And, of course, the true cost of turnover is even greater. There are plenty of less quantifiable factors that work against organizations, as well. For example, decreased morale further impacts turnover and productivity, and the hits that a company takes to its reputation impair its ability to recruit for open positions, secure new customers, and properly service existing clients.
The good news is, over 75 percent of voluntary turnover is preventable, and there are a number of strategies companies have been implementing to enhance retention. Some involve improving compensation packages. Others hope to boost employee engagement by strengthening the organization’s positive social impact. Still others have focused on upgrading management techniques, especially when it comes to providing workers with a sense of purpose and ownership over their domains, and investing in ongoing career development. Growth is essential to happiness, so allowing employees to feel that they’re learning and developing at work, and making a positive impact on the business, is paramount. Such initiatives help with retention and also improve your corporate culture, creating an environment where employees are satisfied and more likely to help and appreciate those around them.
Nothing serves a company better than becoming more strategic and intentional about employee retention. It’s a money-saving approach that can make or break your competitive advantage. Plus, it makes work a more enjoyable place for everyone, business owners included.