Employee Turnover: Is It Eating Up Your Profits?

Keeping the cost of doing business down, yet providing a quality product or service, is one of the most critical components of success for today's leader. What many fail to realize is that employee turnover can represent a very substantial price tag to a company's productivity and its bottom line.

Turnover is costly ? just how costly? Research studies have shown that the cost of replacing a professional or managerial employee runs 1.5 to 3.0 times his or her annual salary. And it can cost up to five times annual salary if you are looking at the intellectual capital ? what a key person knows ? when he or she walks out the door.

For example, to replace a $50,000 top notch sales person with a large customer base can cost you $171,500. And a $150,000 technical manager can ultimately cost $380,000 to replace. That's no small pocket change.

Therefore, in almost any business situation -g rowth, downturn, merger, or even stability - it makes business sense to retain your best people. Here are four steps to get you started:

  • Calculate the True Costs.
    This includes the direct administration cost of recruitment (ads, background checks, assessments, paperwork plus the manager's and HR's time for interviewing, training, orientation) PLUS the indirect costs of performance differential (lost productivity, impact on customers, disruption to the team, lower morale and the lost institutional wisdom).
  • Study the Demographics.
    Understanding and conquering turnover requires probing into the details. For example: Who is leaving (high performers or low performers, older versus younger people, recent hires or people with long tenure)? What job categories or departments are experiencing the most turnover (production staff, systems analysts, salespeople, nursing staff)? When are they leaving (after two weeks, six months, five years, or ten years)? Where are they going (your competitor, another industry, back to school, out of town?)
  • Focus Your Attention.
    Not all turnover is equal. Simply looking at a turnover rate of 17% per annum does not tell the complete story. The loss of a top engineer with ten years of experience, strong customer contacts, and good relationships with suppliers is obviously more troubling than losing a filing clerk you hired a month ago.
  • Therefore, target key jobs that are critical to long-term company success. High priority positions are those that require extensive knowledge of customers, products or services, especially where there is a long learning curve. The cost of turnover is often highest for these strategic jobs.

  • Identify the Real Causes.
    First, you need to understand the current state of mind of your workforce. Start by identifying why people are staying and what you are doing that creates that desire to remain. Then find out what troubles people and would lessen their commitment to your organization.
  • Focus groups and employee surveys are effective ways to obtain real time employee feedback; to identify the 'push' and 'pull' drivers of employee satisfaction; and to develop realistic solutions.

    Then, examine the data for the key reasons people stay and leave. Do further research on selected individuals or employee segments. The person who left because their spouse got a fantastic job in a different city may not be worth further exploration. But the outstanding performer who left for 'better opportunities' or 'personal reasons' may be worth a follow-up call, even a year or so after.

    An Example
    In one company, a detailed analysis revealed that 30% of its IT and 40% of its MBA new hires were leaving in less than 36 months. It then estimated both the direct and indirect costs for these segments. And it came out to a whopping $1.5 million dollars.

    Focus groups were conducted with current and departed IT / MBA employees. Compensation and benefits were not the key turnover drivers, but rather, the day-to-day work was not challenging. These young 'bucks' were bored and fearful of losing their edge. In addition, supervisors lacked basic management skills and were unable to state clearly performance expectations or provide meaningful feedback. Only then could solutions be developed to deal with the real causes of employee dissatisfaction.

    No One Magic Bullet
    Employee retention is an extraordinarily complex issue. What I have consistently found is: That it's NOT the money. When someone leaves for 'better opportunities', what has happened is that certain dissatisfactions - like the ones above - caused the person to put out feelers, or to become curious about recruiter calls, or to start surfing the job boards.

    Make sure this is not happening with your key people - the most critical, difficult-to-replace, top-performers - because they are the ones you can least afford to lose.

    Marcia Zidle, the 'people smarts' coach, works with business leaders to quickly solve their people management headaches so they can concentrate on their #1 job ­ to grow and increase profits. She offers free help through Leadership Briefing, a weekly e-newsletter with practical tips on leadership style, employee motivation, recruitment and retention and relationship management. Subscribe by going to http://leadershiphooks.com/ and get the bonus report "61 Leadership Time Savers and Life Savers". Marcia is the author of the What Really Works Handbooks ­ resources for managers on the front line and the Power-by-the-Hour programs ­ fast, convenient, real life, affordable courses for leadership and staff development. She is available for media interviews, conference presentations and panel discussions on the hottest issues affecting the workplace today. Contact Marcia at 800-971-7619.

    In The News:

    pen paper and inkwell

    cat break through

    Stop Waste, Fraud and Abuse

    Each year, businesses write-off six percent of revenue to waste,... Read More

    6 Steps To Effective Management During Change

    Take the pain out of gain and decrease the upheaval... Read More

    Passion for Profits

    Business owners and managers are busier than ever. As their... Read More

    Innovation Management ? some ideas are better than others

    Creativity can be defined as problem identification and idea generation... Read More

    Why Your Business Needs an E-Mail Policy

    Why is it imperative to have a company E-Mail Policy?... Read More

    9 Tips for Getting the Most From Your Conference Investment

    Tips for Getting the Most From Your Conference Investment All... Read More

    Dont Take New Hires for Granted

    Hiring good people is only half the battle. The other... Read More

    Organizational Techniques - Tickler and Chron File

    One of the biggest problems we encounter in our consulting... Read More

    Time-Wasting Problems - One Question to Move You Forward

    In any organisation, progress is frequently impaired by the time... Read More

    Top 5 Services Your Company?s Accounting Department Should Outsource

    Accounting is one area which every company has to maintain... Read More

    Balance Your Managerial Life

    We have only one life, but we live in three... Read More

    Why Good Enough... Isnt

    About a year ago, I had an opportunity to have... Read More

    How to Find the Right Virtual Assistant for You

    If you search on Google for "virtual assistant", you'll find... Read More

    Hold Your Applause!

    It's amazing what you can accomplish if you don't care... Read More

    What One Thing?

    A few weeks ago I asked my readers what the... Read More

    Five Habits of Highly Effective Conflict Resolvers

    Steven Covey had the right idea. There are discreet skills... Read More

    Benefits of Virtual Assistance

    A virtual assistant is an individual who provides business services... Read More

    Operating on Perpetual Overload?

    Check Out Your E-HabitsAnother week has ended. And, despite moving... Read More

    Gift Giving for Business a Major Headache

    Corporate gifting is a big headache for most business owners;... Read More

    The Comfort Zone

    The Comfort Zone I... Read More

    Comparing Ancient Programs from the East to Modern Programs like Stephen Covey.

    Comparing Corporate and Personal goal attainment programs that have developed... Read More

    Want to Manage Your Time? Get Real!

    You know the drill - the ridiculous deadlines, the relentless... Read More

    Budgets that Damage - The Downsides of Making the Numbers

    In my organisational career, I had budgets from the age... Read More

    Biometrics and ?Return On Investment?

    At this time of tight budgets, the mantra of business... Read More

    Boost Your Leadership Skills Simply By Answering The Question, What Does Our Organization Really...

    The difference between leaders is ears. Good leaders not only... Read More

    Implementing Change

    There are different reactions that individuals experience during time of... Read More

    Birds of a Feather May Be Turkeys

    Birds of a Feather May Be TurkeysBy Gene Griessman, PhD... Read More

    Are You Using the Right Form of Energy?

    As we near the end of summer, here is a... Read More

    The Seven Cs: Partnership Danger Signs - The 4th C: Cumulative Money Problems

    A series of articles exploring the seven critical areas that... Read More

    Influencing the Organisation

    There is a saying about management that suggests some managers... Read More

    Its Not Always What You Say

    A major source of communication breakdowns is incongruence between the... Read More

    How to Attract and Retain the Right People

    If you're one of the many executives struggling with finding... Read More

    The Ten Keys to Maximizing Employee Performance

    1. Let people know what you expect. If people know... Read More