By Nicholas Wiandt
Did you leave the lights on when you left the house this morning? What about the bathroom sink, is the water still running? In our lives, we can inadvertently create or forget issues that can cause a financial drain of some sort. Some drains can be relatively minor in nature, and therefore not worth the time to hunt out and address. Other drains though can have life-crippling effects.
The same is true of business. We can spend a great deal of time chasing down nickels and dimes, squeezing suppliers, examining P&L, watching overtime, and keeping a keen eye on tangible expenses. The tangible expenses are the obvious ones though. They are easy to focus on because it is easy to quantify the actual cost and put it on a spreadsheet. As a result, it is also very easy to be completely oblivious to the hidden costs, let alone to quantify them.
The cost of employee turnover can be just one of those costs. Why? When an employee leaves a company, good or bad, a void is created. As Albert Einstein has taught us, E=mc2, or more directly, it takes energy to create matter. In the case of our business, we will need to fill the resulting void with something (i.e. matter, or another employee). To do so will take energy, and with energy comes a cost. What kind of cost are we talking about?
The consensus amongst studies on this question is that multiple realities come to fruition as we deal with the aftermath of our void. With the loss of an employee, we need to funnel the remaining workload to other workers. This will likely result in a loss of productivity, increased payroll expenses, or both. That is, of course, if we are fortunate enough to not lose business as a result. Then there is the cost of seeking out a suitable replacement, training that replacement, and the time it takes them to get fully up to speed. Not all voids are created equal. With employee turnover, the effect of the issues only increases with the skills or profession of the departing employee the
So, in real terms, what does all of this mean for cost? The rule of thumb is that this hidden cost can be quantified as a percentage of annual salary. The percentage for a lower skilled employee hovers around 30%, a moderately skilled one would be around 60%, while a very high skilled professional would 150% or more! This expense, or unrealized profit, can quickly add up into the hundreds of thousands, if not millions, of dollars.
Not all businesses are plagued with this issue though. Some have examined where they stand in relation to best practices, and have decided to purposely move the needle in a more profitable and growth friendly direction. If, upon examination, you feel that there is a crippling issue preventing you from reaching your goals in a timely manner, then perhaps it is time to think about a change. Eliminating all employee turnover is never a realistic or business-healthy goal; however, huge profits are possible just by getting in line with industry standards. I encourage you: buy out the time and see exactly where your business stands.