Employee Turnover - How Much Is Too Much?
Updated: Sep 16, 2021
The goal of this article is to learn why employees leave their jobs and what you can do to keep them. We will talk about how to measure employee turnover and how to reduce it so your business stays under control. The tools and processes you can use to achieve the right levels of employee turnover are straightforward and easy to implement.
Employee Turnover & Employee Retention
The first step in getting control of employee turnover is understanding how much it costs your company when an employee leaves. When you calculate the cost, don't forget to add in all of the expenses related to replacing that employee - things like advertising for open positions, interviewing new employees, training them on systems and processes they need to know...all of these are considered "turnover-related costs." Beyond these direct costs are the ripple effect costs your company will suffer when an employee leaves.
Calculate what each role at your company makes per year or month depending on if their pay varies or not. Add up the total annual salary plus benefits divided by 12 then multiply this number by the amount of time a replacement employee stays with your organization (the average is around three months). That's how much money you will spend while recruiting someone new who likely won't be as good at their position compared to your employee who just walked out the door.
Harvard Business Review puts the cost of employee turnover at around $30,000 when exit interviews are done. This number likely increases with the size of your organization and how long employees stay in their positions.
Finding out where employee turnover is hurting you: employee retention analysis
To get a better understanding of what's going on with employee turnover, take an honest look at who's leaving your organization and why they're doing it. Employee attrition analysis - also called employee retention/turnover analysis - can offer some clues into this question by looking at patterns that exist between high-performing staff members (the ones staying) and low performers (the ones leaving). It helps to follow up these conclusions by asking direct questions like "Why did our top performer quit?" or "What about losing them makes us feel
Factoring In Ripple Effect Costs
When an employee leaves a firm, most of the concerns center on the direct ramifications. What work are they not doing? Which clients are they not servicing? Some CEOs and executives may even console themselves by adding up their savings from not paying that salary for a month or two, or three. Ripple effect costs extend beyond the immediate expenses and can go a lot farther than you think.
One employee leaving can have a negative ripple effect on the employee morale of the remaining team. People may start to question why that particular person left and what could happen if they leave also? They might even go as far as assuming it's because there was something wrong with everyone already at their company, which is likely not going to make them feel better about staying where they are.
The loss of an employee from one department often impacts other parts of your business too - everything from sales teams who rely on referrals or past customers for future deals, to managers working closely with key employees in order to get projects done on time...all these roles suffer when you lose crucial people like this.
How To Measure Employee Turnover
When companies track turnover closely, the national average for employee turnover is around 20% - that means every employee who works for you will quit, on average, once a year. This number can be even higher in some industries like retail and customer service where the turnover rate is closer to 30%. The good news is this also means that 70% of your employees are sticking with their jobs for at least one full year.
Now, let's talk about you and your company by measuring your employee turnover employee retention rates. If you can collect the last five years of employee turnover data, you'll be in great shape to start understanding this crucial aspect of your business and increasing employee retention rate.
When measuring employee turnover rate, you'll need to know who all of your employees are, and how long they've been with the company. It might be helpful to have employee turnover rates for each department as well so that you can look at which areas are more likely candidates for churn.
The math is super simple when measuring employee turnover. Divide the total number of leavers in a month by the average number of employees for the same month, and you get your monthly turnover rate. For example, if you had 100 employees last month, and 2 of them left, that's 2/100, or 0.02. Expressed as a percentage, you have a 2% monthly employee turnover rate. This would be the overall employee turnover rate which breaks down into voluntary turnover (resignations) and involuntary turnover (firings). As irony would have it, sometimes the best way to reduce voluntary turnover is to increase involuntary turnover rates.
When you extrapolate that 2% number out to a 12 month timeframe, however, you end up with a staggering 24% employee turnover rate for the year assuming the average number of employees stayed the same.
That's 24 exit interviews (you're doing structured, data-driven exit interviews, right?), 24 job posts, at least 24 job interviews (closer to 96 if you're doing it right), 24 new 90 Day Onboarding Plans (you're doing 90 Day Onboarding Plans for all new hires, right?), and 24 rounds of direct employee turnover costs and 24 rounds of ripple effect costs.
Put simply, employee turnover is extraordinarily expensive, especially when one or two simple retention strategies can be used to boost employee retention.
Nobody likes to calculate employee turnover rate. It's depressing, embarrassing, and frustrating to confront a subpar employee retention rate. But having the courage to look that employee retention rate in the eye is the best way to manage employee turnover.
So, let's talk about how to reduce employee turnover by improving employee retention.
Making Sense of Your Employee Turnover Rate
Understanding the reasons why employees leave is both challenging and important. Do employees quit or are they fired? What are the reasons they give for leaving? Do employee retention issues differ based on any employee characteristics like years of tenure, age groups, gender or race?
The use of employee engagement and survey tools could help you identify employee satisfaction issues before they lead to employee turnover.
To find solutions for reducing employee turnover , it's important that organizations be able to pinpoint areas where efforts should be focused. This means knowing who is leaving and why - without this information, managers simply won't know which employees need attention or how best to impact them through training or incentives programs.
It's All About Job Satisfaction
When it comes to job satisfaction, something most people don't realize is that employee retention is a two-way street. As the old saying goes, "If you love what you do, you'll never work another day in your life." Unfortunately for many employees this simply isn't true.
In fact, up to 70% of job satisfaction can be attributed to three things: your relationship with coworkers and supervisors/managers; how much autonomy employees have over their tasks and projects; and whether or not they're able to use their strengths on a daily basis while doing meaningful work that makes an impact on others' lives outside of their office walls.
Employees want leaders who will challenge them both professionally and personally - it's easy for people get stuck in ruts at jobs where they feel unchallenged or where they aren't learning new things.
Employees want to feel like their work matters and that it's making a difference - if employees don't s