Think about the last time an employee left your company.  (I know – it’s painful to think about this!)  What did their departure and you replacing them cost you? Did you have to pay to post the position?  Invest in a headhunter?  None of this is cheap, but it’s just the start of what turnover really costs.
When an employee leaves, there is a ripple effect on the company.  You’ve probably seen this.  Let’s look at an example of an office manager.
Jan was the office manager of ACE Plumbing, a 20-employee residential and commercial plumbing company.  Besides the owner, she was 1 of only 3 administrative professionals in the company, and she had been with the company for 6 years.  Her spouse took a new job and they moved, which reduced his commute, but gave Jan a 60-minute one-way commute.  While she loved Ace, the commute was too much. She took a job closer to her new home, even though it meant a $3,000 pay cut. 
It took 4 months to find Jan’s replacement.  No one at Ace had the extra time to write the ad, post the ad, review resumes, conduct interviews, etc. In Jan’s absence, they had to hire a temp in order to provide the back-up support Jan had given to the primary person who answered the phone and helped with scheduling.  The accounts receivable specialist had to absorb the rest of the bookkeeping, resulting in her needing overtime and there being a host of mistakes as she learned this part of the business.  The owner cancelled her vacation because the office was in such disarray and she needed to help out daily. With the owner focused on office management, a major commercial project ran into trouble.  It took the new person 9 months to reach 80% productivity, which meant that even after the replacement came, others were impacted for months. In total, it was a terrible year during this transition.
Does this scenario sound familiar?
The ripples from Jan’s departure fanned out to the accounts receivable specialist, scheduler, owner, and customers.  And the costs?
Job ads: $800
A/R Specialist overtime of 7 hours/week for 5 months: $4,080
Temp help for 4 months: $2,560
Penalty for a late tax filing: $1,125
Lost revenue because of mistake with customer: $5,000
Lost revenue when temp was initially handling scheduling: $5,000
Owner’s time running the search: $7,500
Reduced productivity of new hire during learning period: $12,000
Owner’s time doing training and initial support: $4,000
Time of other admin team providing training and initial support: $12,000
This already totals $53,985.  And I didn’t even try to value the owner’s cancelled vacation!
Jan’s position paid a $50,000 salary, so these costs represent 108% of the actual role, which is in keeping with public information about the cost of turnover.  SHRM (Society for Human Resources Management) estimates that the cost for replacing a salaried employee is 50-75% of their salary.  The percentage of salary is higher for sales and executive positions where the direct impact on revenue is greater.  This study by CAP found that for employees in low-paying positions (under $30,000/year), the cost is 16%; 20% of mid-range positions ($30,000-$50,000) and 213% for highly educated executives.
The job ads themselves ($800 when replacing Jan) were only 1.6% of her salary. Even the most conservative estimates of the cost of turnover show that there is considerably more total cost.
If you want to run calculations on turnover costs in your company, this calculator can help.  Some strategies are budget neutral and even those that do have budget impact are generally much less expensive than full turnover costs.
Knowing how much turnover impacts your company is important for knowing your complete costs for doing business and identifying where you can increase profitability. Quantifying the cost of turnover can lead to important considerations around company approaches for hiring and retaining employees.
The good news is that there are many strategies you can utilize to minimize turnover, as well as lessen the costs of it.  We will talk about these more in upcoming blogs and newsletters.  But if you don’t want to wait and you are ready to talk about turnover today, give us a call.
 By Dana L. Harrison
Simons Biter & Associates Partner- Synergy Consulting Services
[email protected]
http://www.ere.net/2014/07/18/how-to-really-calculate-the-cost-of-employee-turnover/ Link to use on webpage/newsletter in the ‘this calculator’ link