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


    Lead to Succeed: The Seven Essential Steps to Work Leader Success

    In my book "You're In Charge?What Now?" I use a... Read More

    Poly Bags and Pallet Shrouds - Just Get it Right

    For many companies, procuring the right packaging, such as Poly... Read More

    The Dark Side of Help Desk SLAs

    You just signed a Help Desk Service Level Agreement (SLA)... Read More

    Be a Change Agent ( Part 1)

    Aligning business organizations to be successful in the present and... Read More

    Characteristics/Attributes of a Lean Operation

    Fundamentals in Place? There is a designated place for everything... Read More

    7 Tips for Growing Your Business You Do Not Want to Ignore: Business Strategies To Easily Implement

    Growing companies must always be ready for the next challenge.... Read More

    Creativity and Innovation Management ? Psychological Reward

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

    The Top Three Problems IT Managers Face and How to Overcome Them

    Todays business environment has changed drastically from just a few... Read More

    Coaching Employees in the Workplace

    After a full week of training, you are still a... Read More

    Indiscretion Can Kill Your Business

    The quickest way to cancel out all the thought, work,... Read More

    3 Innovation Keys - Do Your Innovative Efforts Need More Power?

    Recently, I attended a webinar with nearly 400 other Chief... Read More

    Dont Let Your Measurements Mislead You

    Don't Let Your Measurements Mislead You ... Read More

    Lack of Operations Manuals Stunting Your Growth?

    Lack of Operations Manuals stunting your growth?CONTENTS:1. Do you lack... Read More

    Lower the Bar

    "Nothing great was ever achieved without enthusiasm." Ralph Waldo EmersonI'm... Read More

    Organizational Techniques - Tickler and Chron File

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

    How Your Business Can Pick A Software Developer

    Eventually, your business is going to need to have some... Read More

    Project Management 101

    Project management is a very important business concept because it... Read More

    Using Outlook to Count Responses

    Here's a productivity tip that will save you a lot... Read More

    How To Rebuild Trust

    Here are some quick thoughts on ways to turn things... Read More

    6 Ways to Keep Things Simple

    Six Ways to Keep Things Simple We can have greater... Read More

    Quick Tip - Effective Meetings Begin With Goals

    Goals are critically important for the success of a meeting.... Read More

    Four Corners of a Triangle: Why Organizations Succeed or Fail

    When we want to hire people for a corporation or... Read More

    Quick Tip - Effective Meetings Earn a Profit

    Most people treat meetings as a free resource that can... Read More

    Saying One Thing, Doing Another...

    This week I was asked to speak at an internal... Read More

    Christmas and Business Gifts for Your Clients and Employees!

    Tis' the season for business and corporate gift-giving! If you... Read More

    When Politics Prevent Innovation - Or? Still Fighting Battles and Losing Wars

    The objective is to beat the competition and make money.... Read More

    Romford Accountants: Accountancy Firm Roles and Responsibilities

    If you own or operate a business in the UK,... Read More

    Workplace Security Plan: Does Your Company Have One?

    Consultant's Perspective...The threat of violence whether it emanates from a... Read More

    How to Prepare for Your Companys Financial Future

    Sooner or later, most business owners need to look for... Read More

    Saying ?No? Gracefully to Customers and Colleagues

    Envision the scenario: You've just been asked at the last... Read More

    Business Intelligence & Data Warehousing in a Business Perspective

    Business IntelligenceBusiness Intelligence has become a very important activity in... Read More

    Quick Tip - Effective Meetings Have SMART Goals

    The first step in planning an agenda is to identify... Read More

    The Ins and Outs of Internal and External Relations

    INTERNAL PUBLIC RELATIONS: Never overlook an opportunity to do internal... Read More