If we have a lost cost in our business of $100,000, $500,000 or $1,000,000 would you know about it? Should you know about it? Would you take action to reduce the lost cost?
What is the actual cost of turnover for your business?
Unfortunately, well over 90% of companies do not capture this true cost or know how to calculate it specifically for their company. To get a total annual cost, one must look at the cost per person multiplied by the number of employees lost in a year.
At IMEC, we leverage resources to show companies how to calculate their true cost of turnover. Keep in mind that this is not a national or industry average calculation. It is specific to each business based on the company’s wages, training time, benefits, time the position is open, turnover number, and other information. IMEC has gone through this process with many companies, providing very valuable, but shocking data. Additionally, companies do not dispute the final cost because it is their data, and they were involved in the calculation.
POP QUIZ: What do you think the average annual cost of turnover is for clients who have done this calculation?
THE ANSWER: The annual average cost of turnover for multiple companies IMEC has worked with is $1,387,360.00! What a huge hidden, unknown cost! Capturing this cost is becoming more important as turnover increases and hiring new employees is more difficult.
A key business issue for companies of any industry is the struggle to fill an open position. It is causing business pains with missed business opportunities, delayed shipments, increased overtime, safety and quality risks, and frustration with long term employees.
So, in desperation companies are changing their hiring practices to:
- Instant hiring, limited or no interviews
- Work history, skills, stability, and reasons for leaving are not factors in hiring decisions
- No reference checks
- No drug screening
- Rehiring multiple times
- Sign on bonus
Then, begins the Unstable Workforce Cycle:
Executives today are saying, “Let’s open the front door wider and get more people hired!” This often feels needed in today’s labor market, but is it a solution? How much time are you spending on recruiting and getting people hired versus retention?
What if you balanced this activity and worked to open the front door, but also work to close the back door? Leaving the back door open will not adequately meet you staffing needs.
When retention is better, there’s no need to hire as many people. Let’s say you lost 100 people last year, but with improved retention activity you reduce that to 60, now you need to hire 40 less people. While it is common sense, many companies are not working with this approach.
To assist client in improving workforce stability IMEC provides support that assess the current state for turnover costs, staffing, retention, and turnover analysis. With this information an improvement plan is developed and implemented. Here is a quick look at cost savings for a sample of clients who have taken action:
Annualized cost savings:
- Company A: $860,844
- Company B: $366,624
- Company C: $1,432,260
- Company D: $1,601,432
You can join the list.
Take the first step and join me in the upcoming UNCOVER HIDDEN COSTS: How to Calculate and Reduce Turnover Costs Webinar on June 30 where I will share turnover calculation methods and cost examples that you can use to determine your company’s true cost of turnover and actions you can take to reduce turnover costs.