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The Hidden Costs of Turnover Cut Your Profits

Imagine this: You're at work, and your coworker takes a job with another company, leaving a position vacant for several weeks, maybe months. What happens in the meantime? You're pulled away from your own responsibilities to help to fill the void. How much do you think lost productivity on your job and the vacant position are costing the company? How is your department's morale?

These hidden costs of employee turnover - lost productivity, low morale and additional turnover when other employees watch their coworker leave - are seldom considered even though they eat away at profits.

Add those hidden costs to the better-known expenses - like recruiting new workers - and the total cost of annual turnover can be 150 percent of each departing worker's salary.

The Problem

Andy Starzecki, vice president of operations at Goulston Technologies, a Monroe, N.C., manufacturer of textile fiber process chemicals, knows that the cost of running reference checks or ads in the newspaper is trivial compared with the cost of training a new employee.

When the company hires new machine operators and others in manufacturing positions (which have the highest turnover at Goulston) one person is pulled away from his or her job to train them for up to two week, Andy says. New hires are apprentices for 8 to 12 weeks. "You're paying twice as much to get a certain job done." he said. "All of a sudden, you're talking about big bucks."

Andy's calculation doesn't include lost productivity and possible overtime, which Goulston may have to pay for coworkers who are pitching in while the new hire gets up to speed. While new employees are climbing the learning curve, there is also the cost of mistakes. That can add up, especially in high-turnover industries. Employers Don't See the Hidden Costs

At a small business, one dissatisfied employee can have a bigger effect on how coworkers feel about their company than at a large corporation, says Randy Helton, president of the Monroe-based American Community Bank. "When they leave, there's a pretty obvious reason, and sometimes they become your most vocal employees. Unhappiness thrives on unhappiness. If one is unhappy, it can spread to other employees."

It's easy for high turnover to wear on other employees, says Andy Starzecki of Goulston Technologies. Managers get tired of training new workers, and employees grow weary of pitching in while new hires get up to speed.

Employers are "not looking at the complete picture,"

said Jane Lommel, workforce consultant for the Hudson Institute, a private, not-for-profit research organization based in Indianapolis. "They're not thinking about the soft costs, and that really eats them alive."

Average annual turnover in all U.S. industries is 15 percent, according to a study by the Princeton consulting firm Sibson & Co. And in some jobs, it is much higher: 50 percent for bank tellers, 100 percent in retail, and 120 percent in fast food.

"In the end, this all affects the bottom line,"

said Margaret Murphy, vice president of global communications for the consulting firm Right Management Associates. "That's why it's so important to invest in retaining employees. It can save a company money. "

Many companies either don't calculate their actual turnover numbers correctly or they look at the cost as a fact of business, a cost they cannot affect, Murphy said. "In the past, when there was a large supply of labor, they were able to think of it that way. Now, with the tight labor market, some are starting to think there is something they can do about it."

Calculate Turnover Costs

Look at your turnover costs, including the " hidden " ones. Download this
MS Excel spreadsheet
which shows you just how good and investment in the MRA profiling system can be.

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