If you’ve ever owned a vehicle, you’re probably familiar with hidden costs.

You make your car payment.

Then you pay for car insurance.

And yearly registration.

Petrol.

Repairs.

And maintenance, like oil changes and car washes.

The initial cost of your vehicle looks a lot different than your end-of-the-year total.

It all adds up without us realising it.

And that’s exactly what staff turnover can do to our business.

We don’t realise at first how much losing an employee really costs.

Turnover can cost a single business tens of thousands of dollars—even for just one person or position.

“The cost of turnover can equal anywhere from one month’s to several years’ salary for a departing employee. The more complex the job and the higher level of the job, the greater the cost,” shares Edward Lawler III in a Forbes article.

Determining the turnover costs for your business is not entirely straightforward. It involves several aspects of time and money.

It’s not as important to calculate specific numbers, but to understand what all goes into the cost of turnover. 

Four main aspects involved in calculating cost of turnover include:

1. Direct costs

To calculate the direct costs of an employee’s departure, consider the employee’s total remuneration.

Remuneration is the employee’s base salary plus the value of their benefits (i.e. health insurance, vehicle use, superannuation contributions) plus the value of on-costs like worker’s compensation premiums.

Direct costs of turnover include:

• Fees associated with advertising and recruiting for the vacancy
• Hiring costs like reference checks and pre-employment physicals
• Temp agency fees and costs

2. Indirect costs

One of the biggest costs of losing an employee is also losing productivityfrom the employees who are filling in for the open spot.

To determine the financial impact of productivity loss, experts suggest using ⅓ of the employee’s remuneration cost.

Other indirect costs include:

• Daily remuneration rate of staff members involved in the recruiting and hiring processes to fill the vacant position (i.e. hiring managers, HR staff, administrative staff, team members)
• Amount of time spent on hiring activities (i.e. screening resumes, scheduling and conducting interviews, evaluating candidates, making offers)
• The time and money spent on processes like reference checks and pre-employment medical appointments

3. Onboarding and training costs

We all know that a new employee doesn’t walk in on the first day and close big sales deals or solve large-scale process inefficiencies.

It takes time to train a new employee and get them up to speed.

That costs something, such as:

• The daily total remuneration rate of the new employee and the employees giving the training (i.e. managers, trainers, mentors)
• The cost of training resources, manuals, and facilities
• The wages and benefits paid until the employee gains full productivity

4. Administrative costs

Any time and wages spent on:

• Processing termination paperwork
• Conducting exit interviews
• Closing computer access
• And any other administrative tasks involved in terminating an employee

. . . must be considered in your turnover cost analysis.

Ok, so what’s the final number?

Getting all of the numbers exactly right and making precise calculations can be time-consuming, especially if we’re talking about making the analysis for several different positions.

Don’t worry: I don’t have that kind of time either.

What I really wanted to do was show you all of the costs involved in a single turnover, so you could see how truly costly it can be.

It’s kind of like the car example I mentioned at the beginning. We consider some costs, but don’t always notice everything that’s involved.

The main takeaway point is to sincerely realise how costly staff turnover is.

It can have an enormous impact on your bottom line.

Not to mention your morale, momentum, and team motivation.

So, rather than dwell on the negative, let’s work together to reduce turnover, so we never have to calculate—or better yet, suffer from—the loss incurred by losing a valuable employee.

One of the biggest and most useful tools I’ve used in my career—and the one I always encourage other business owners to use—is touchpoint interviews.

These regular touchpoints allow us to offer feedback to employees and hear feedback from our employees as well. It opens up the floodgates of healthy communication.

Any questions?

If you have questions on this topic or any others, feel free to reach me by email or set up a free one-on-one consultation session, or drop me a comment below.

Thanks for sharing!